Everything You Need to Know about Nonprofit Taxes
I started my nonprofit, All Bikes Welcome, when I was 23-years old. At that time, I barely had experience filing my own taxes, and the idea of filing on behalf of an organization was totally overwhelming. I spent years prying information out of tax accountants, most of which did not understand the specifics of nonprofit tax filings. Year after year, taxes were a frustrating and time consuming project.
Enough is enough.
Now, after five years of learning by failing, I feel like I am entering tax season confidently for the first time. And I’m sharing everything that I learned with you!
1099 Filing Deadline
If you worked with independent contractors in 2022 (and paid them more $600 or more), you are required by the IRS to submit a 1099-NEC. Organizations are required to file the form with the IRS digitally or by mail by February 1, 2023.
The form number and the acronym I-R-S used to be enough to overwhelm me. But filling out a 1099 is actually quite simple. You will need to gather the following information before you begin.
Your organizations EIN
The total amount that you compensate the contractor in the previous year
Contractor’s name and street address
Gather this information for all of your contractors. Then, brew a cup of tea and crank these forms out. If you took the time to gather information ahead of time, it should be data entry - a great thing to do if you’re not feeling motivated but want to cross something off your plate!
Get On Your CPA’s Calendar ASAP
Tax accountant’s with experience in nonprofit tax filings can be hard to come by and they are in high demand. If you don’t have one already, send a text message to your network TODAY asking people if they know anyone. I’m encouraging you to do this ASAP, because you may have to make multiple outreach attempts to get a lead on a CPA with availability.
When you get in contact with a CPA, go ahead and get a meeting on their calendar. Some CPA’s will be booked for months, so it’s important to get on their calendars as soon as you possible.
When are your taxes due?
The first time my friend, mentor, and nonprofit consultant Kerry Moll told me that not all nonprofit taxes were due on April 15th, I was shocked. After years of filing my org’s taxes on April 15th and paying rush fees at accounting offices, no one ever bothered to inform that my organization’s taxes are actually due on May 15th.
Are all nonprofit taxes due on May 15th? No.
Your organization’s tax deadline directly corresponds with your accounting period (aka fiscal year). To determine when your taxes are due, visit this page on the IRS website.
What form do you need to file?
Different version of Form 990 are required of tax-exempt organizations. And the form you are required to file is determined by your organizations income for the year. Visit this webpage to determine what form your organization needs to file.
Prepping for Your First Meeting
In order to optimize your first meeting, you will need to come prepared with the following items:
Previous year’s income statement (see below if you don’t have this)
Previous year’s tax return (unless this is your first time filing)
Your organization’s EIN
Your (or the appointed officer’s) SSN
A list of contractor’s and how much they were compensated
List of your Board of Directors
Names of anyone compensated over $100,000
What if you don’t have an income statement?
This was my reality for years before I started paying for a bookkeeper. There are few different things you can do if you don’t have annual financial documents.
DIY an income statement
Hire your tax accountant to create an income statement
Either way, you’re going to have to categorize all of your expenses and revenue. The easiest way to do this is to download all of your previous year’s bank statements and write (yes, put pen to paper) donation, grant, marketing expense, office supplies, etc. Then, your income statement can look as simple as the one below.
Don’t Be Scared
The time has come for you to confidently tackle your nonprofit organization’s taxes. Honestly, the patriarchy and the claws of capitalism want you to stay scared of taxes. When you stay scared, it bogs down your workflows and sucks up more energy than it should. When you live in fear, the people in power get to rest knowing that they’ll stay in power.
We’re not doing that anymore. Check out the checklist below and tackle your 2023 taxes like it’s no big deal!
