“A stitch in time saves nine.” This centuries-old proverb refers to mending sails on a ship and means that if you solve a small problem early, you’ll prevent it from becoming a bigger one. For mission-based .ORGs, preparing for tax time is made easier by following this advice. The best way to avoid anxiety, missed opportunities, and mistakes is to tackle tax tasks throughout the fiscal year, not just at the end when it can feel overwhelming. We hope the following four strategies can help get you started on making tax time more manageable for your purpose-driven organization.
Get in Form-ation
Understanding your federal filing requirements is the all-important first step to adhering to them. In most cases, even if you’re not subject to paying taxes, your organization may need to file tax forms to maintain its tax-exempt status. But which form do you need? Non-profits file one of several versions of the IRS 990 form, according to their income thresholds. These forms can typically be submitted electronically, and are public documents, so remember that anyone can view the information they contain. This IRS page offers useful tools and resources for various tax-exempt organizations. If you don’t already have a Tax ID or Employer Identification Number (EIN), you can apply for it there, as well.
Organize Your Organization
It may sound obvious, but record keeping greatly impacts how difficult or easy tax time will be. Developing a record-keeping system that works for you, and making sure you have a back-up, is key. Be sure to save receipts and track expenses throughout the year and enter them in your system under appropriate vendor categories such as “supplies” or “consulting.” According to this piece on Philanthropy U, non-profit financial expert Jon Osterburg recommends generating a statement of functional expenses, a matrix of data that includes the function of money going out (e.g. programming, administration, fundraising), and the nature of that function (e.g. salaries, rent, supplies). Make sure you also rigorously document incoming funds from grants, donations, and fundraisers, so that you can send thank-you notes and receipts to donors, maintain an accurate budget, and project your next year’s fiscal needs.
Your budget will be an especially important document for year-end reporting. According to this piece for Donor Box, “Once adopted, the operating budget also becomes an essential financial management tool helpful in monitoring ongoing operations and organizational activities throughout the year.”
Be On Time to Your Destination
All of the planning and preparation you’ve done during the year will be undermined if you don’t file your tax forms by the deadlines. Know when they are, figure out how long it takes you to gather materials, and give yourself a little breathing room for unexpected issues that may arise. The IRS requires registered non-profits to file their annual tax returns by the fifteenth day of the fifth month after their fiscal year ends. For the organizations operating on the calendar year, this usually means May 15th. Being late will not only cause anxiety for you and your staff, but could result in penalties for your organization, including loss of tax-exempt status—without which you cannot receive tax-deductible contributions and may even be subject to income tax.
Use Automation and Supplementation
It’s important to recognize that many non-profit leaders need a little help come tax time. Thankfully, there are resources to lean on. Depending on the size of your .ORG, consider using payroll and accounting software programs, such as Intuit Quickbooks or ADP. Many providers offer tools developed specifically with non-profit needs in mind. Likewise, online banking is a must, so make sure that the financial institution your organization works with offers these services. Finally, if your organization doesn’t have a dedicated financial officer, you may want to find an accountant you can trust and rely on to guide you through the reporting process, answer questions along the way, and help file your tax forms when the time comes. Check with your board members for recommendations—if you’re lucky, some may have accounting experience themselves!
So, what is our tax-time take-home? Be disciplined about your .ORG’s accounting procedures and make those practices a part of your organization’s daily routine. Don’t wait until the last minute! By learning how to employ these strategies, we hope the end of the year will be something you—and your accountant—can face without trepidation!
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