What should your organization know about Nonprofit Taxes? Aren’t nonprofit organizations exempt from nonprofit tax issues except employment related taxes? The answer is no, but many organization’s make this assumption. With limited accounting and finance staff, there is a tendency to rely too much on other professionals for this knowledge. It is also important to develop internal capacity to deal with nonprofit tax issues as the board and management are ultimately responsible. If these nonprofit tax issues aren’t dealt with proactively, they can take significant effort and resources to resolve later, reducing your ability to serve others. Keep in mind that just because an organization has received tax-exempt status from the federal government does not mean it is exempt from state and local taxes, property taxes, sales taxes, payroll taxes, or other taxes.
The following is some basic nonprofit tax knowledge:
- Form 990 – The Internal Revenue Service Form 990.
- Independent Contractors – Make sure they are issued an IRS Form 1099-MISC at year end. More information on the Form 1099’s can be found on the IRS website: IRS.GOV You must issue Form 1099-MISC to each person who you have paid at least $600 for services and rents and Corporations are generally exempt from this requirement which is why you need to obtain a W9 from each vendor before you pay them.
- Health Care Tax Credit – There has been a health care tax credit available for smaller nonprofits with 25 or fewer employees starting in 2010.
- Property and Utility Taxes – If your organization owns a building, are you sure you are exempt from property and utility taxes?
- Sales and Innkeeper Taxes – If your organization purchases items, are you sure you are exempt from sales and innkeeper taxes.
- Federal Payroll Taxes – Nonprofits must comply with both federal and state payroll reporting requirements. Federal Tax Withholding, Social Security Taxes, and Medicare Taxes must be deposited through the Electronic Federal Tax Payment System (EFTPS). The frequency with which deposits must be made depends on the size of the payroll, and may be semi-weekly, weekly, semi-monthly or monthly. In addition, the organization must file a Form 941 on a quarterly basis. Keep in mind that Board members should be especially aware of potential personal liability for payroll taxes. Federal law requires someone is the “responsible party” and is personally liable for payroll taxes which could be the board member.
- Unemployment Taxes – In Indiana, a nonprofit employer of 3 employees are less should be exempt from State Unemployment and most are exempt from Federal Unemployment
- Other – For Charitable Gaming, do you follow these laws and have systems to be in compliance. For fundraising events, what steps are you taking to minimize facility fees? For merchandise or publication sales, what are you doing to minimize any fees or taxes? Did we file our annual report with the secretary of state office? Are we providing written acknowledgement for gifts over $250 and provide the fair value of any goods or services in exchange for a $75 or larger donation?
More Information – At the end of the article will go into more detail about how to stay in compliance and avoid taxes and penalties. What are you doing to make sure you are paying no penalties and taxes and staying in compliance. If this nonprofit tax issues aren’t dealt with proactively, they can take significant effort to resolve with significant resources allocated to compliance. Additionally, these taxes and penalties increase your cost and ability to serve others.
The Internal Revenue Service Form 990-Keep in mind the different filing thresholds which include Form 990-N Electronic Notice (e-Postcard) for organizations with gross receipts of $50,000 or less. Form 990-EZ threshold is gross receipts of $200,000 or less and Total Assets at the end of the tax year less than $500,000. Organizations with $200,000 or more in revenue or $500,000 of assets will file the full Form 990. Form 8868 (extension) may be filed electronically or in paper form. The IRS Annual Report noted the following common issues: private benefit and inurement, no filers, political activities, employment tax issues, and organization’s not operating as required by exempt status.
The health care tax credit is a great contribution to smaller nonprofit to offset increasing health insurance costs. It maybe difficult to qualify if the employer contributions to health insurance are not enough or the average salary of your employees exceeds $50,000.
For property, utility, innkeeper, and sales tax exemptions, you need to make sure that you meet the proper filing requirements. A nonprofit organization must register for a sales tax exemption by filing Form NP-20A, available online at http://www.in.gov/dor/3506.htm Form ST-105 is used by nonprofits for sales tax exemptions including the 10 digit state tax ID. The Sales Tax Information Bulletin #10 lists out the nonprofit sales tax exemption. Form ST-200 is used for each account to exempt sales taxes from utilities. GA-110L can be filed to claim a sales tax refund relating to utilities for the current and prior 3 years. For property exemptions, you need to file Form 136 on the even years along with Form 103 and Form 104
For IN state unemployment, you are no longer exempt once you employ four or more individuals for a day for 20 weeks during the calendar year. There is no minimum dollar amount associated with this qualification. You may opt to become a reimbursable employer, as opposed to an employer paying premiums.
Our firm provides tax preparation and consulting services so please contact us if we can help your organization.