5 Accounting Tips for Nonprofits
Nonprofits are a special breed of organization. As the name implies, nonprofits aren’t built to produce profits for shareholders – instead, they simply exist to support some sort of cause.
As a result, they’re governed by a unique set of tax rules and accounting standards. And those rules become even more complex and strict once you throw in statuses such as tax-exempt and charitable.
To help you navigate these rules and standards, here are some tax tips for mission-driven members of the nonprofit class. These tips will help not only your organization, but also your donors and volunteers.
5 Accounting Tips for Nonprofits
- Stay Compliant: Nonprofit status isn’t a permanent condition – you must keep your business compliant by meeting a number of annual requirements, or kiss goodbye to your tax status. Simply forgetting certain documents can be enough to lose your tax exemption. That’s not hysteria, either. Literally hundreds of thousands of organizations have had their status yanked simply because they forgot to file one or more documents. So remember to file, and stay in bounds on issues such as public support, political activity and competition with for-profits.
- Mind the GAAP: If your nose is constantly in the paper’s “money” section, you’ll see plenty of companies wowing Wall Street analysts with better-than-expected earnings. Thing is, those earnings are almost always “adjusted” or “non-GAAP” earnings, meaning they don’t comply with Generally Accepted Accounting Principles – they back out certain items in the calculations. You don’t have that luxury. Nonprofits must follow GAAP standards when it comes to compiling their financial records. In fact, GAAP accounting includes a few pronouncements specifically targeted toward nonprofits.
- Treat Donations With Care: It’d be nice if every donation that came in your doors could be met with a handshake, smile and a couple words of thanks. But it takes a little bit more than that to make sure everything is kosher with the IRS. You actually owe it to your donors – who often will use their donations as a tax write-off – to provide proof of their generosity. A number of rules apply, but the most common one is that a donor must receive a written acknowledgment from a charity to write off any contribution of $250 or more. Broadly, though, make sure you know any written documentation that you owe your donors, and supply it right away.
- Keep Volunteers in the Know: Many nonprofits are built on the back of hard-working volunteers, who give their time at no cost to you. That said, you can offer them a little financial help by informing them of tax deductions they can make in the line of duty. At-job items such as uniforms or office supplies are deductible, as are a host of travel and transportation expenses, such as rental cars and oil changes.
- Get Professional Tax Help: Operating a nonprofit is more challenging than running a business in a number of ways. Budgets can be even tighter, and you’re often keeping the lights on simply by the grace of others. That’s why any nonprofit should seek out professional tax and accounting help – because no boulder should be left unturned, whether it’s seeking out operational efficiencies, or making sure you keep that all-important tax-exempt status in play.
McManamon & Co. serves nonprofits with expert service to ensure that you stay compliant and optimize your operational performance. We serve a wide range of nonprofit organizations and provide expertise on everything from governance to tax consulting.
If your nonprofit needs a hand with its taxes, you would like some advice on how to make your nonprofit more efficient or you simply want to ensure that all your I’s are dotted, call us at 440.892.8900 or contact us online.
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