The Charity: 6 Common Tax Mistakes that Non-Profits Make

If you run a non-profit organization, contrary to popular belief, it doesn’t mean that you don’t have to worry about taxes. 

In fact, stay on top of your tax issues to the best of your ability if you don’t want to get hit with fines or have your organization shut down altogether. 

When you understand the charity that you run and how to handle the business aspects, your organization will thrive and grow. With that said, there are several tax-related mistakes that non-profit organizations often make. 

Consider these mistakes below so you can avoid them and handle your tax matters properly. 

1. Failing to Get Organized

To get the most out of your nonprofit tax filing and accounting, you need to get organized.

This is something that every company needs, too many fail to master. Whether your goal is to get a great tax refund or to pay off debt, getting organized is the key to it all. 

Develop a record keeping process that works and that you can easily stick to. This could mean keeping both physical copies of records and digital copies, and you should definitely make use of software when at all possible. 

By having a process that you can stick to, you are far less likely to make mistakes with your taxes that can cost you dearly later. 

2. Not Truly Understanding Their Non-Profit Status and What It Means

There are so many situations in which a nonprofit manager doesn’t truly understand their status and ends up failing to satisfy requirements.

The most common situation by which your non-profit loses its tax-exempt status as a whole is because the manager failed to file a return from the previous year or from previous years.

It’s also important to understand that your tax designation affects both your state and federal requirements. If you simply follow the non-profit articles of incorporation in your state, you are not necessarily satisfying the requirements of the Internal Revenue Service.

You also need to be mindful of integral documents, such as Form 990, which should be filed the year you form the non-profit.

By understanding your status and what it requires, it becomes easy for you to avoid a plethora of mistakes that many fall prey to. 

3. Doing it Yourself When You Should Hire a Professional

There’s a time to go the DIY route and there’s a time to bring in the pros. 

Hiring a tax professional that is versed in bookkeeping and accounting can be just what you need to manage your taxes in a productive manner. Since the success of your company depends on accuracy and proper accounting, you can’t go wrong bringing a Certified Public Accountant (CPA) on board. 

Hiring some professionals is necessary since tax laws change from time to time. The last thing you would want is to have tax law specific to non-profits change in a way that impacts you, yet you were none the wiser because you didn’t keep up with these laws.

When you have access to a CPA, they will assist you in managing your organization’s debt, boosting your credit and bond rating, managing your investments to the fullest, and ensuring that you always stay organized.

4. They Forget About Their Local and State Taxes

Non-profit organizations often forget about taxes that pertain to their city or county as well. While they may have certain tax-exempt classifications, it doesn’t necessarily mean that they will be exempt from these local taxes. 

This also means that non-profits overlook other such tax obligations — such as sales tax, personal property tax, and taxes on real estate. 

5. Having a Board of Directors That is Subpar — or Not Having One At All!

Every non-profit worth its salt needs to have a strong government in place. This government, known as its Board of Directors, is integral to decision making and the objective sharing of ideas. 

By having a trusted board, you’ll have firm direction and the ability to tackle all of your issues head-on. What’s worse is that so many non-profit organizations don’t have a Board of Directors at all. 

Being loose with this detail makes it that much easier to be loose with details related to your taxes and accounting. 

6. Not Embracing Technology

Finally, so many non-profit organizations also remain stuck in the past in their willingness to embrace technology. Simply put, your non-profit will get left behind if it isn’t embracing this technology to the fullest. 

There are several mobile apps you can look into that will help you with your accounting and finance. Even more intriguingly, Artificial Intelligence (AI) is now helping non-profits optimize their fundraising, make the best use of their staff and decide on the best ways to shape company policy and initiatives. 

When you stay ahead of the game with the technology of the industry, you can count on your non-profit to be all the better for it. 

Understanding the Charity and the Tax Mistakes That Non-Profits Make

When you want the charity or non-profit that you run to stay at its best, handle your taxes. These are the tips that will carry you far in that regard and keep you from getting into trouble with the IRS.

If you plan to run a successful non-profit, we’d love to show you what kinds of financial services we can provide you with. 

Get in touch with us to request a quote for whatever kind of non-profit accounting work you need.