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Tuesday, April 5, 2011

Preparation of a tax return for a non-profit organization

Non-profit or not for profit organizations are required to file tax information with tax authorities, however these types of companies and organizations may be exempt from several types of taxation such as State and sales taxes because of the nature of their business (managementhelp.org). 

These businesses perform a wide range of social services that can benefit a community or groups of people in a way that cannot be easily profited from. The current tax deadline for non-profits is May 15, which is near a month after the individual tax-filing deadline. This article will discuss the tax return preparation for these types of organizations in terms of non-profit classifications, tax filing forms, filing procedures and non-profit tax filing tips.

Types of non-profit organizations

A complete list of non-profit classifications can be found at the following reference link and typically include the 501 number designation followed by a letter and another number in brackets. These numbers represent the type of non-profit organization for tax filing, governmental and funding reference purposes. To avoid confusion, to be officially recognized as a tax-exempt non-profit, the organization must be registered as such with the appropriate government entity in addition to applying for tax exemption with the U.S. Internal Revenue Service. Several 501 non-profit label designations are given to the various types of non-profits.

Tax filing forms for non-profit organizations

There are many forms that are used for non-profit corporations and/or organizations. These forms are designed for those business types and include the '990 series', applications for tax exemption and other organizations such as tax exempt political organizations. A list of several of the IRS forms that may be needed for tax filing are provided below as sourced by the Internal Revenue Service, http://www.irs.gov.

Form 1023 : "Application for Recognition of Exemption" (For 503(c)'s)
Form 1024 "Application for Recognition of Exemption Under Section 501(a)"
Form 1120-POL "U.S. Income Tax Return for Certain Political Organizations"
Form 8868 "Application for Extension of Time to File an Exempt Organization Return"
Form 990 - "Return of Organization Exempt From Income Tax"
Form 990-N "Tax filing form for non-profits with annual income is $25,000 or less"
Form 990-EZ - "Short form Return of Organization Exempt From Income Tax"
Form 990-PF - "Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation"
Form 990-BL - "Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons"
Form 990-T "Exempt Organization Business Income Tax Return"

Filing procedures and online non-profit tax returns

Filing taxes for non-profit corporations online or e-filing is a similar process to individual e-filing. Either a known online tax filing preparation software is used or one is found through the Internal Revenue Service. The same forms and documentation requirements are needed for online tax filing, however this expedites and records the information in the IRS database(s) faster than filing via mail and paper.

Procedures for filing a non-profit tax return involve 1) identifying the type of non-profit 2) locating the necessary filing forms 3) properly completing and submitting tax forms. In cases where tax status and/or financial circumstances are blurred, uncertain or complex, the assistance of a professional tax assistant may well be worthwhile as the consequences could include audits, or refilling or additional information requests which can cost valuable time.

Non-profit tax filing tips

• Verify non-profit status and type
• Gather all appropriate documents
• Record all charitable donations and documents
• Read filing instructions such form 990 instructions, form 557 and 598 (about.com)
• File online for faster returns and/or processing
• Consult tax preparation services if need be

Non-profit corporations and businesses are required to report annual income, asset and expense information just like for profit companies, however non-profit groups may be tax exempt, freeing them from the tax burden since profit is not a primary motive for these types of businesses. Several forms and procedures exist for filing taxes as a non-profit, some of which are provided in this article. The deadline for filing taxes as a non-profit is May 15 and online tax preparation software and/or services exist to expedite the process and make it more efficient.

Non-profit tax filing sources:

1. http://www.irs.gov
2. http://www.muridae.com/nporegulation/documents/exempt_orgs.html
3. http://taxes.about.com/b/2006/05/15/deadline-to-file-form-990-for-nonprofits.htm
4. http://www.irs.gov/pub/irs-pdf/p4453.pdf
5. http://www.managementhelp.org/legal/lgl_need.htm
6. http://www.not-for-profit.org/page2.htm
7. http://managementhelp.org/tax/np_tax.htm