Tax preparation in general could imply to set aside lengthy periods of time. It is not different for a non-for-profit organization. As it should be, members’ passion and energy could direct them to focus on building the mission of the organization, and can often distract them from the tax law compliance.
A tax-exempt status is not easy to obtain, and not every organization that applies is granted the status; so, building the mission of your organization can be as important as to comply with the tax law for your non-for-profit to remain under the tax-exempt status. The organization must routinely report activities to the Internal Revenue Service (IRS), the Secretary of State, City, and State Department of Revenue, payroll taxing authorities, city, and county assessors when required.
Why does a tax-exempt organization have to file a tax return?
While the non-for-profit is exempt from most income tax, its exempt status is still subject to oversight by the IRS. The non-for-profit must report an overview of the financial activities and accomplishments filing with the IRS the federal Form 990 or the variance of the form that applies, to ensure that the organization is operating under their tax-exempt purpose, so it can keep the status granted.
Form 990
The Form 990 could be prepared by the non-for-profits on their own and perhaps could help to save in the cost of preparing the form, but because the law regulating the tax-exempt is very complex, and the forms can be confusing, retaining a tax law specialist who prepares the form for your organization could be the smart and more beneficial step to take preventing penalties and/or revocations of your organization status.
The Form 990 is a public document and those interested on its information like the governmental agencies and the potential donors will pay special attention to the information reported; unintended mistakes may result in revocation of the status. It is very important to keep in mind that inconsistency between the exempt purpose and the language in the section of accomplishments may prompt to an audit.
If you are planning to prepare your tax return yourself, you should consider the time it would take to prepare it, just having to read through the instructions and understand all the IRS rules can take you hours. For most people, this alone makes the cost of professional tax preparation worthwhile; however, the most effective way to save on the cost of preparing your non-for-profit tax return is making sure your form is prepared correctly avoiding penalties and revocation.
If you have any question in how to prepare your not-for-profit tax return, call our tax specialists at Rosillo & Associates. We understand nonprofit tax law and have been preparing tax returns for years. We’ll be glad to assist you.