Accounting & Tax Services for Non-Profits

Non-profit organizations do a great deal of good, not just within their communities, but also around the globe. As if their fundraising efforts aren’t stressful enough, they are under a tremendous amount of scrutiny; non-profit organizations are subject to specialized tax laws as well as very complex reporting requirements.

The laws change fast, but non-profits are still required to adhere to them. Additionally, the frequent changes in personnel due to volunteer turnover can wreak havoc on the accounting systems, particularly when the volunteers are in positions that deal with the organization’s finances. A professional accountant that provides tax services for non-profits can ensure that these changes won’t cause problems in reporting.

Benjamin H. Johnson, CPA, serving Farmville, VA, and the surrounding region, is an accountant who is fully aware of the intricacies of the federal and state tax laws and reporting requirements that non-profit organizations face. He assists organizations in getting their 501c3 applications approved, ensuring that people who contribute to their non-profit can count their donation as a deduction, which is very incentivizing for many givers. Some of the issues that are relevant to non-profit organizations are listed below, as well as some of the most frequently asked questions that non-profits might have.

Tax Write-offs and Deductions for Non-Profits

While most non-profit organizations are exempt from federal income taxes, there are exceptions to the rule. Should the organization do work that’s out of their usual scope, work that results in profit and is not related to their charitable mission, they might be responsible for paying taxes on these profits if their gross business income is more than $1000.  This is known as UBIT (unrelated business income tax).

There are, however, opportunities for the organization to take deductions to reduce their taxable profits.

A non-profit organization can deduct any compensation paid to officials in their company as well as wages paid to their employees. They can deduct maintenance and repair costs, any interest accrued on loans, employee benefit plans, and charitable contributions. Also, they can report any losses incurred as they were trying to generate profit through business activity.

Requirements for Non-Profit Accounting

There are many parts of non-profit accounting that are much the same as for-profit accounting; both require businesses to track and report their income and expenses.  Also, non-profits have all of the same reporting requirements for payroll as a for-profit business, including payroll tax withholding and issuing W-2s at the end of the year.

However, the non-profit’s ultimate function is to funnel their resources back into their mission; this results in requirements that are different from their for-profit peers.

For example, non-profit organizations must meticulously itemize their expenses, across three specific areas: management, program, and fundraising. All functional expenses must be reported, so it’s vital that a non-profit organization have a good cost allocation plan, which will clearly define how every expense has been allocated across all areas as well as to specific programs within the organization.  Benjamin H. Johnson, CPA, is knowledgeable about these requirements.  As part of his tax services for non-profits, he can assist your organization in setting up an accounting system that will fulfill them.

Requirements for 501c3 Designation

In order for people to deduct contributions to your organizations from their taxable income, you must be designated a 501c3 organization by the IRS.  This requires an application process to demonstrate that your organization’s purpose is charitable, religious, or educational in nature.  You must provide detail in the application about the work that you do and your mission.  We can assist you in preparing the application so that the approval process will be more efficient.

Frequently Asked Questions About Tax Services for Non-Profits

Q: What do I need to do when our organization raises money through a fundraising event?

A: All revenue from any fundraising event that is more than $15,000 should be carefully detailed on a Form 990 or Form 990EZ. All expenses related to the event should be tracked as well.  Additionally, organizations should track how much of the revenue came from auction proceeds, ticket sales or direct contributions. These contributions can include both cash and non-cash revenue, such as donated goods, sponsorship, and others.

Q: How do we ensure our volunteers aren’t considered employees?

A:  How a person is compensated for their time determines whether they are an employee or a volunteer.  If a person receives compensation, they would most likely be considered either an employee or an independent contractor.  We can help you determine whether a person should be considered a volunteer, employee, or independent contractor and comply with all the appropriate regulations.

Q: Does our tax-exempt status mean that we are exempt from paying taxes?

A: Unfortunately, no. Some tax-exempt non-profit organizations are still required to pay local and state taxes as well as property and payroll taxes.

Q: Must all non-profit organizations file Form 990?

A: Most non-profit organizations will have to file a type of Form 990, with the exception of churches. A Form 990 is basically the tax return form for non-profit organizations, but which specific type of the form your organization will use is dependent on the annual revenue and assets your organization reports. As part of our tax services for non-profits, we can assist your organization in preparing and filing this very important form.