Blog by Andrea Ortega, MNM, CNP, Director of Nonprofit Services at BryteBridge
It’s tax season! Everyone should be gathering to prepare for their annual filing with the IRS. If you’re running a tax-exempt nonprofit organization, this means Form 990 should be on the top of your nonprofit compliance to-do list. Organizations with a fiscal year-end date of December (most common) will be due May 15.
Aside from it being required by the IRS, filing your 990 is essential for your ability to fundraise successfully. Since 990s are public records, donors, businesses, and funders could be looking at these returns when considering donating to your organization! Building trust is all about transparency. According to the Give.org 2020 report on Donor Trust, individuals who place high importance on trust are more likely to donate to charities and contribute more money.
Maintaining 501c3 Status
Whether you’re a start-up, a small, or a large organization, you will want to know the filing requirements to help maintain your nonprofit’s exemption status and prevent losing your donors’ trust. Federal compliance for nonprofit organizations is required to keep your donations tax-exempt. Failure to comply can get your approved 501c3 status revoked, which means your donors won’t be able to get any tax deductions either. Ultimately, this will discourage them from funding your organization.
In case this information is new to you, anyone, and I mean anyone, can look at your current 501c3 status and your posted tax returns. The IRS Tax Exempt Organization Search is the place where people can look up every nonprofit organization registered in the US. Simply by searching with an EIN or Organization name. The IRS posts the determination letters, status of revocation, and copies of 990s that have been filed.
Bookkeeping Makes Strong Organizations
Nonprofit organizations are responsible to the public to maintain a complete and detailed record of their operational activities. Bookkeeping, whether done in excel, by hiring professionals, or using accounting software such as QuickBooks, is an essential part of running an organization. Whether $1 or $100,000, the organization needs to have all receipts, including grants, funding, and in-kind benefits received through donations and expenses in order. According to GuideStar, a leading information service specializing in reporting on U.S. nonprofit companies, new research reveals that transparent nonprofits received more contributions and were stronger organizations.
But wait! Nonprofit compliance is not just at the federal level. Charities seeking public donations must also register to do so at the state level to avoid fines or penalties. Additionally, if your organization solicits funds from multiple states, it is crucial that this filing is handled in each state within which it seeks funding.
Don’t put your organization at risk of significant fines, and make sure you submit the required registrations or annual reports to the Division of Charities or Office of the Secretary of State. The accounts must include complete records of earnings from operations and donations received from individuals and other organizations.
State compliance is difficult and tedious. Many states have not moved to an electronic filing system, although COVID-19 has accelerated the need. In some states you are automatically exempt when you receive your 501c3 status, but the majority require you to register with their own agency. The best way to find the office that handles your state’s compliance and all the state requirements is to visit our interactive state map.
Why are taxes and fundraising such a codependent relationship?
- Bookkeeping & Reporting can be the transparency donors and funders are looking for to choose YOUR organization over another.
- IRS has strict requirements and income percentage rules that you must meet to maintain your 501c3 status.
- Every state has its own laws and regulations for fundraising and soliciting. It’s important to understand and be in compliance in the state you operate in and where your donations are substantial.
Check out for ”Understanding Compliance & Fundraising,” our free, on-demand webinar that covers more on this topic. We will review the importance of compliance, best practices for nonprofit leaders to verify their status with respective agencies, and things to keep in mind when fundraising.
Connecting compliance and fundraising is much easier than you think and many of the topics we will introduce you likely have already been doing. But it’s important to understand the why and BryteBridge is here to help you with that!
In the meantime, check out these additional resources to help your nonprofit navigate tax time: