As someone who manages a charity or a nonprofit organization, it is reasonable to think that you don’t have to file an annual tax return since your organization was exempted by the Internal Revenue Service (IRS) from tax responsibilities. But even though your charity does not require to pay the tax, your team might still be liable for providing some information to the IRS every year.
To avoid troubles with your organization’s tax exemption status, we did our research for the best eight tax tips for charities.
1. Determine if your charity requires to file a return.
Not all organizations are exempted from submitting the IRS Form 990, and you need to determine if your charity is one of them or not. If you get some time to check the IRS, you will find that those religious charities don’t need to fill and submit the form 990. Those state and federal charity groups are also exempted from submitting their annual return.
2. Prepare the right annual return form.
If your charity is not qualified for the exemption of filing the annual return form, the next step that must do is determine the right Form 990. There are different versions of this form, and you need to submit the one that is appropriate for your charity’s situation. For instance, if the total of your charity’s gross receipts is less than $50, 00 for the whole year, the Form 990-N is the suited form for your charity. The other versions are Form 990-EZ, Form 990, and Form 990PF.
3. File your return on time.
Every form submitted to the different government offices have their limit or assigned submission schedule. For submitting the Form 990, the charity is required to submit the form on the 15th day of the fifth month following the end of the charity’s tax year. For example, if you decide to end your tax year on July 3, you must submit that year’s Form 990 by December 15. If your charity failed to file the tax returns for three consecutive years, your tax-exemption standing would automatically be revoked.
4. Educate your volunteers about what they can deduct.
Being a volunteer is a wonderful way to use your time, but it can also be expensive if volunteers will not be careful. As someone who manages a charity, you have to educate your volunteers with the various things that are tax-deductible. The following are some of the examples:
- Expenses on Transportation – if you are traveling in a car, gas, oil changes, and mileage are tax-deductible for those who are serving for a charity. Give your volunteers peace of mind as they travel through reducing their burden with taxes.
- Expenses on Travel – if your volunteer needs to fly, stay in a hotel, and buy their food while doing their duties, all these expenses must be deducted from their taxes.
- Other Expenses – anything that is needed as a volunteer, such as office supplies, phone usage, and uniforms are tax-deductible.
5. Acknowledge your charitable donations.
One of the standard rules with charitable donations is acknowledging them. Your organization should provide a written statement through the form of a receipt and a “thank you” note. Your acknowledgment must reflect the amount of the donation, the date when it was received, and the reassurance that your charity is qualified for a tax-exemption.
6. Document charity’s donations and expenses.
If you don’t want to end up being knocked by the IRS audit team, you have to record every donation and expense of your charity. Sometimes, you will need the service of an accountant, so be sure that you are hiring someone reliable and trustworthy. Another way to keep your record accurate, your charity might consider buying basic accounting software and management software for donations. You can use them to record the charity’s expenses and revenues.
7. Include every money received, even those you have gained through Crowdfunding.
If you are new to the nonprofit world and managing a charity, you might be missing this thought. Though Crowdfunding is a new phenomenon, it is subject to the laws of donation tax. The IRS is fully aware of Crowdfunding, and they will never close their eyes with this.
8. Always request for professional tax help.
It will never be a good idea to do the tax duties on your own, especially if you are new with managing a charity or nonprofit organization. Google searches won’t be a big help to you and your team. Don’t wait to experience tax-exemption issues before you seek the advice of a professional. If you want to get the most of your charity’s tax-exempt status, consult an external service for professional tax help.
Indeed, operating and running a charity can be very rewarding for most of us. It’s an experience that will bring a huge change to many lives. But to keep your charity operational, you need to learn about tax rules and regulations, follow them, and comply with it immediately.
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