Non-profit Taxes: A Helpful Guide to Tax Compliance

Tax law is complicated, especially for businesses, and there is no shortage of challenges and pitfalls business owners can run into if they’re not prepared. Nonprofit taxes and operations come with their own unique set of challenges as well. 

The IRS regulates nonprofit organizations in the United States with very precise tax regulations. The rules and requirements for nonprofit taxes differ from other entity types, but the stakes for understanding them are just as high. 

Take the time to read through this guide to figure out what your obligations are! If you know your requirements ahead of time, you can plan appropriately for tax compliance.  

Do Non-profits Pay Taxes? 

If you know anything about operating a nonprofit in the United States, you probably know they don’t have to pay taxes like other businesses. However, that doesn’t mean they can ignore IRS regulations.

Does a nonprofit organization pay taxes? The short answer is that they are exempt from many federal and state taxes, but not all of them. Nonprofits still make payments to Social Security and Medicare and must submit tax documentation annually according to specific IRS nonprofit filing requirements.  

Types of Non-profit Organizations

Nonprofits in the United States include a variety of organizations classified under section 501(c) of the U.S. tax code. The most common nonprofits are 501(c)(3) organizations, including private foundations and other charitable organizations formed for some kind of public benefit. 

Benefits of a Non-profit Business

Having officially organized charities and nonprofits offers their owners a lot of benefits. Some of these benefits are shared with other registered or incorporated businesses, and some are specific to nonprofits:

Nonprofit tax exemptions

Private donations to qualifying nonprofits are tax-deductible

Shields individuals stakeholders from financial liability

Eligible for grants from private and government sources

Gives business a separate entity detached from any private individual  

Nonprofit Tax Exemptions

Likely the biggest benefit to running a nonprofit organization is the tax-exempt status. Because the company is formed to benefit the public good and not produce profit for individual owners, it is not subject to the income taxes that apply to other business profits. 

Nonprofits are essentially exempt from federal taxes outside payroll-related taxes, assuming they maintain their status with the IRS. Key nonprofit tax exemptions include:

Federal income tax

Federal property tax

Federal sales tax 

Many states offer exemptions for income tax and sometimes sales tax at the state level

How Do You Keep Tax Exempt Status? 

Nonprofit tax benefits make a big difference in supporting your company and its mission. However, preserving those benefits can take a lot of work. You must apply to initially receive tax-exempt status for your nonprofit. Maintaining tax-exempt status requires careful compliance with all IRS regulations:

Nonprofit operations must clearly be directed toward qualifying exempt purposes under the law, such as education, religion, scientific advancement, or other well-defined charitable aims

No contributions directly to a political campaign

No advocacy on behalf of a particular political candidate

Business operations cannot produce profit directly for private interests or shareholders

Nonprofit organizations must submit annual information returns to the IRS reporting on all finances

Common Nonprofit Tax Forms

To stay in compliance, nonprofits must submit an annual return report on their finances. This will usually involve some variation of IRS Form 990, an informational return specifically designed for tax-exempt organizations. 

State forms and exemption criteria vary. However, these are the principal tax forms you will need at the federal level:

Form 990

Form 990-N

Form 990-EZ

Form 990-PF

IRS Form 990 

IRS Form 990 is the primary document used for reporting nonprofit taxes. It is an annual information return (AIR) that demonstrates a nonprofit’s compliance with nonprofit regulations. 

Form 990 briefly describes a company’s mission and structure, then makes a full report of revenue and expenses, making it clear that expenses are directed in line with the stated mission.  

IRS Form 990-N

Any tax-exempt organization can meet its AIR requirements with a full 990. However, nonprofits below certain size limits can file substitute forms that require less thorough reporting.

Public charities and similar nonprofit organizations that normally receive less than $50,000 in gross receipts can file 990-N. IRS form 990-N is a simple e-postcard that can be filled out and submitted online.

IRS Form 990-EZ

Form 990-EZ is an intermediate return for organizations whose gross annual receipts are less than $200,000. The nonprofit’s total assets must add up to less than $500,000.  

IRS Form 990-PF

Form 990-PF is the AIR form for all private foundations with tax-exempt status. This applies regardless of their actual financial status or total assets. 

When are non-profit tax returns due in 2023?

Nonprofit tax deadlines vary depending on your organization’s fiscal year. You are required to file your 990 AIR by the 15th of the fifth month past the end of your established accounting period. 

For most organizations that use the calendar year, the nonprofit tax return due date is May 15, 2023, for the 2022 tax year.    

How to File Your Nonprofit Tax Return

As of July 2019, all 990 nonprofit tax returns must be submitted by electronic filing online. You must fill out the AIR with all relevant financial information and provide any supporting documentation required for transparency and establish that you are complying with nonprofit requirements. 

You will receive a follow-up letter requesting more information if you fail to include any necessary pieces of information in your return.  

Filing on Your Own 

If you’re trying to figure out how to file Form 990 online for the first time on your own, you can find form instructions and e-filing guidance for tax-exempt entities through the IRS. You simply need to complete your 990 and file it online through the IRS platform.  

Hire an Accountant to Help with Nonprofit Taxes 

The number of steps and forms for nonprofits to complete is few, but the process can still be complex. If you make mistakes in your recording and reporting, your tax-exempt status could be at risk. 

Consider working with a tax professional the first time you have to complete and file your nonprofit tax return. Nonprofit taxes don’t have to be a headache, and an accountant can help the whole process go much smoother. Count on the experts at 1-800Accountant to guide you through your nonprofit small business taxes.