What’s your nonprofit tax IQ?

By Jim Simpson, CPA and president of Financial Technologies & Management

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.

The following is some basic nonprofit tax knowledge:

•  Form 990 - The Internal Revenue Service has updated the Form 990 for 2012 after the major over haul in 2008. 

•  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.

• Unemployment Taxes - In Indiana, an nonprofit employer of 3 employees are less should be exempt from State Unemployment and most are exempt from Federal Unemployment taxes. 

• 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?

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 2012 Form 990 major updates include the following:  A reminder to not include SS#'s as the IRS and filing organization are required to publicly disclose return upon request.  Schedule F instructions are clarified to let an organization know when they are required to disclose grants and assistance for foreign organizations or individuals.  Part XI, Reconciliation of Net Assets includes new lines for unrealized gains and losses, donated services and use of facilities, investment expenses, and prior period adjustments  that were previously included on Schedule D.  Part IV, List of Officers and Directors no longer requires addresses.  Schedule G, Fundraising Activities is revised to clarify that all contributions, not just charitable contributions, should be reported with the fundraising event.  Schedule L, Transactions with Interested Persons requires the reporting relationship between disqualified person and filing organization.  Schedule O, Supplemental Information requires a filer to list the type and amount of each other expense when it exceeds 10% of the total functional expenses.  Keep in mind the different filing thresholds which include Form 990-N Electronic Notice (e-Postcard) for organization's 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.  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.

Since 1999, Financial Technologies & Management (FTM) is a full service CPA firm providing financial and accounting management and software technology solutions exclusively to over 350 nonprofit and religious organizations.  We work with our clients to provide them with this nonprofit tax expertise along with other financial and accounting management solutions along with software technology solutions.  We have extensive nonprofit experience to meet our clients needs regardless of size.  Our Controller and CFO services insure we provide a full and comprehensive services approach to meet our clients needs.   Contact us today to see how our firm's approach, philosophy, and benefits can help your nonprofit organization.