Nonprofits have the distinct advantage of exemption from federal income tax, but nonprofits still must regularly file like any organization in order to maintain that status!
Just like any other organization that actively participates in the ecosystem of our economy, annual filings with the IRS are required. In the case of nonprofits, the rules are a bit different than with a regular business.
Aside from some very specific exceptions, all nonprofit organizations with tax-exempt status must annually file an “Annual Exempt Organization Return” Form, otherwise known as Form 990. Depending on your organization’s financial activity, your non-profit will have to complete Form 990 or its related versions, such as Form 990-EZ. Filing is due by the 15th day of the 5th month after the end of your nonprofit’s fiscal year. Let’s take an example:
“Homies for Harambe” is a nonprofit that provides moving services for senior citizens in the Orange County area. Homies for Harambe established themselves officially on October 13, 2015. Their fiscal year ends on October 13, 2016. Therefore, they have until March 28, 2017 to file their first annual return. They initially try to complete the Form 990, but they realize they are very small in their first year and had less than $50k in total revenue, so they need to use Form 990-EZ for their filing.
Unrelated business income tax
A nonprofit has a specifically stated purpose or mission, such as postsecondary education or providing pantry food for impoverished families. However, as the organization grows, it may expand with other operations. Tax-exempt organizations with substantial income unrelated to its main nonprofit purpose must use a form 990-W to figure out estimated tax payments and file a form 990-T. For example:
St. Augustine Preparatory is a religious, private middle school that serves the San Gabriel Valley area. They also have a tutoring unit that focuses on specific subjects like math and science. This service is available to the public and charges by the hour. The revenue the school makes from tutoring significantly helps their operating costs, but is seen as being outside their specific purpose as a religious education nonprofit. The tutoring income would be considered an unrelated business income and so they would need to file a form 990-T.
Misc rules to consider
Tax-exempt organizations that go through legal structural changes, such as transitioning from a partnership to corporation, must file an entirely new exemption application to establish that the new legal entity qualifies for the exemption.
If your organization is changing its internal regulations or has significantly new services, you simply have to report it on your Form 990 to be filed. Changing your accounting period will require filing form 1128 (the one used by all organizations to request a change in accounting period) in addition to Form 990.
Preparing needed filings for businesses and nonprofits alike may sometimes get overwhelming. Having a supporting team for such needs is something we here at MiklosCPA can cover! We are a California-based firm focused on helping businesses with their accounting and tax needs using current cloud-based services with personalized, regular communications. If you are interested in learning about our services, contact us! If you found this article useful, follow us on our social media pages for future updates.