In short

Tax support for nonprofits centers on the annual information return and on protecting exempt status: determining which Form 990 version applies, reconciling revenue and functional expenses to the return, identifying possible unrelated business income, keeping donor acknowledgment and quid pro quo records, and handling payroll tax filings for employees, since exempt organizations with staff still have employment tax obligations.

Which annual return applies

Exempt organizations generally file Form 990, Form 990-EZ or the electronic Form 990-N depending on their size, and private foundations file Form 990-PF. The IRS explains on its Form 990 page who must file which version. We confirm the right form from your actual receipts and assets each year.

What the return draws from your books

Form 990 asks for revenue by source, expenses by function, compensation of officers and key employees, and balance sheet detail. When the books already track functional expenses and restricted funds, most of the return's financial sections fill directly from the ledger.

Unrelated business income

Income from a trade or business regularly carried on that is not substantially related to the exempt purpose may be taxable. The IRS describes the rules on its unrelated business income tax page. We flag activities such as advertising sales or certain rentals for review.

Employment taxes still apply

Exempt status does not remove payroll obligations. Organizations with employees withhold and deposit federal employment taxes and file quarterly returns under Publication 15.

Penalties for missed filings

The IRS notes that an organization that fails to file a required annual return for three consecutive years automatically loses its exempt status. We keep a filing calendar so that does not happen.

Key terms

Definitions for terms used on this page:

  • Assets: Assets are resources a business owns or controls that are expected to provide future economic benefit.
  • Exempt and Non-Exempt Employees: Non-exempt employees must receive overtime under federal law; exempt employees meet specific tests that remove that requirement.
  • Balance Sheet: A balance sheet shows what a business owns, what it owes and the owners' equity at a specific date.

Nonprofits problems this addresses

  • Restricted grants and donations must be tracked separately from general funds
  • Board members and funders expect program, management and fundraising cost splits
  • Donors need written acknowledgments for gifts above IRS thresholds
  • Volunteer treasurers change and institutional knowledge is lost
  • Annual Form 990 information depends on clean, categorized books