Maintaining your nonprofit corporation, federal tax-exempt status and solicitation rights requires you to be informed of Birmingham’s filing requirements and best practices. For that reason, we have prepared a thorough nonprofit compliance guide. This blog acts as a broad overview of the nonprofit compliance requirements that you must meet in order to keep your 501(c)(3) nonprofit status. For more information, contact a CPA in Birmingham, Michigan.
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Know that your nonprofit is compliant with Form 990 and State fillings.
Government regulation and public monitoring of nonprofit organizations are tight. This is understandable, given that 501(c) nonprofit organizations are qualified for public support and are not liable for federal business taxes. Laws are in place to protect the public and make sure nonprofit organizations are not abusing their financial privileges since these benefits are generally unavailable to for-profit companies. Numerous ongoing federal, state, and municipal regulations must be followed by nonprofits.
Advantages of Compliance
Despite the significant financial benefits that a 501(c) nonprofit enjoys, noncompliance with laws and regulations can result in severe penalties.
- A nonprofit is shielded from daily fines and the IRS’s attempt to cancel its tax status by correctly submitting Form 990 annually. When submitting a request for grant funding or corporate sponsorship, organizations must show that they are in good shape with state corporations and charity solicitation authorities.
- Developing a proactive approach towards compliance might supply your company with tangible proof of your financial responsibility. In addition to assisting in ensuring your continued success, this will enable you to show the public why you deserve their support. The low price is negligible compared to the considerably higher costs of fines and citations.
Introduction to Form 990-Series
● Form 990
This is the most extensive form in the series, sometimes known as the “Return of Organization Exempt from Income Tax.” It gives an in-depth analysis of the financial operations, governance, and operational efficacy of medium-sized to big tax-exempt organizations, which is required to increase transparency and foster public confidence.
● 990-EZ Form
It is a simplified Form 990 designed for companies with annual gross income of less than $200,000 and overall assets of less than $500,000. Smaller companies can now easily comply with laws thanks to this form, which also preserves high levels of openness.
● Form 990-PF
Private organizations of all sizes primarily use it. It contains full information about grants, donors, and financial activities, which makes it simpler to keep an eye on the foundation’s financial operations and adherence to legal and regulatory requirements.
● 990-N Form
Designed for small, less than $50,000 gross receipts tax-exempt organizations. For companies with little financial activity, this form simplifies the reporting procedure to the basics, making compliance easier.
● 990-T Form
Filed by companies whose revenue-generating activities have little to do with their exempt goals. This form makes sure that tax-exempt organizations track income accurately and might be required to pay taxes on it, even though it has nothing to do with their primary objective.
Importance of filing accurately and in a timely manner
All organizations have an essential obligation to file Form 990, which serves several important purposes:
- Enhancing transparency
Form 990 ensures that NGOs follow legal and ethical guidelines by offering the public and stakeholders financial and operational information while also building trust.
- Ensuring regulatory compliance
The form gives the government important oversight tools to confirm compliance with the regulations required to keep the status of tax-exempt organizations intact.
- Keeping Up with Tax Rules
Nonprofits who submit taxes on a regular basis are able to stay compliant with current requirements by staying informed about changes in tax rules.
Other considerations
To improve processing accuracy and efficiency, the IRS mandates that the majority of the 990-series forms be filed online. Paper returns that are rejected and potential fines might result from noncompliance.
There are certain exceptions to the fundamental rule that all tax-exempt organizations must file. Churches, the majority of faith-based organizations, government corporations, state institutions, and the subsidiaries of other charities may be exempt. Always double-check with a tax professional or the IRS.
