When it comes to nonprofit taxes, there are a few key things entrepreneurs need to know in order to stay compliant. This article will outline the basics of what needs to be done when filing taxes as a nonprofit, as well as some of the tax deductions that can be taken.
Nonprofit Organization Tax Codes
Nonprofits are classified under numerous tax codes by the Internal Revenue Service (IRS). Each category is slightly different, based on the purpose and goals of the organization. Depending on the tax-exempt form and rules applicable to your nonprofit’s specific tax code, it may determine which taxes your organization owes: some codes equate to a fully tax-exempt status, while other codes may require payment of selected taxes. Understanding your nonprofit’s tax classification and the associated tax-exempt form and rules is essential to ensuring compliance with tax regulations and maximizing the benefits of your nonprofit’s tax-exempt status.
In order to file taxes correctly, it is important to determine how your organization is categorized. Some of the most common codes are:
– 501(c)(3) – This is the code for charitable organizations; this code allows the organization to receive tax-deductible donations.
– 501(c)(4) – This code is for social welfare organizations; this code allows the organization to engage in political lobbying.
– 501(c)(6) – This code is for business leagues and chambers of commerce.
-501(c)(7) – This code is for social clubs.
To find out which tax code relates to your nonprofit, you can use the IRS Tax Exempt Organization Search tool.
What Taxes Do Nonprofits Owe?
The biggest misconception about nonprofits is that they are exempt from all taxes. However, this is not the case. While nonprofits are exempt from federal income tax, they may still owe other taxes, such as:
– Payroll taxes – If your nonprofit has employees, you will need to withhold and pay federal income tax, Social Security, and Medicare taxes.
– Sales taxes – If your nonprofit sells goods or services, you may be required to collect and remit state and local sales taxes.
– Property taxes – Nonprofits may be required to pay property taxes on any real estate or other property they own.
– Excise taxes – Nonprofits may owe excise taxes on activities such as gaming, alcohol, or fuel.
How To File Taxes As A Nonprofit Organization
Now that you know which taxes your nonprofit may owe, it’s time to learn how to file them.
Obtain A Tax Identification Number
The first step in filing taxes as a nonprofit is to obtain a Tax Identification Number (TIN) from the IRS. This can be done by completing and submitting Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
Once you have obtained your TIN, you will need to use it on all tax forms and documents filed with the IRS.
Choose The Correct Form 990
The next step is to choose the correct Form 990 to file. This form is used by nonprofits to report their finances and activities to the IRS. The type of Form 990 you will need to file depends on the size and purpose of your organization.
– If your nonprofit has gross receipts of less than $50,000 per year, you will need to file Form 990-EZ.
– If your nonprofit has gross receipts of more than $50,000 per year, you will need to file Form 990.
– If your nonprofit is a private foundation, you will need to file Form 990-PF.
– If your nonprofit is a political organization, you will need to file Form 1120-POL.
Make Sure All The Information On The Form Is Correct
Once you have chosen the correct Form 990, it is important to make sure that all of the information on the form is correct. This includes your organization’s name, address, and Tax Identification Number. Furthermore, be sure to accurately report your organization’s gross receipts and expenses.
If anything is incorrect on your Form 990, it could result in delays in processing or even rejection of your return.
Submit Your Form On Time
Once you have completed and filed the correct Form 990, it is important to submit it on time. The due date for Form 990-EZ is the 15th day of the 5th month after the end of your fiscal year. The due date for Form 990 is the 15th day of the 5th month after the end of your fiscal year. The due date for Form 990-PF is the 15th day of the 5th month after the end of your fiscal year.
What Deductions Do Nonprofits Get?
Since nonprofits are tax-exempt, they are not required to pay federal income taxes. However, they may still be eligible for other tax deductions, such as:
– Charitable donations – If your nonprofit receives charitable donations, you may be able to deduct them on your taxes.
– Business expenses – If your nonprofit has any business expenses, such as office supplies or travel expenses, you may be able to deduct them on your taxes.
– Employee expenses – If your nonprofit has any employees, you may be able to deduct their salaries and benefits on your taxes.
As you can see, there is a lot to know about taxes for nonprofits. However, by following the steps in this article, you can ensure that your nonprofit is compliant with all tax laws. If you have any further questions, be sure to consult with a tax professional.