Managing a nonprofit organization is quite a balancing act, and the IRS doesn’t make it any easier. Nonprofit-specific tax laws can be even more complicated than those regulations for for-profit businesses. Are you up to date on recent changes in nonprofit tax law? Check out our nonprofit news and tips to ease your 2017 tax season.
Don’t make the mistake of thinking that uniform guidance does not apply to your organization because you aren’t using federal money. Often money awarded through states originates with the federal government. Be sure to confirm the initiation point for all funding your organization accepts.
Uniform guidance, enacted at the end of 2015 for the 2016 tax year, regulates how nonprofits account for federal awards in excess of $750,000. Uniform guidance, which was previously covered by the OMB A-133 audit, is designed to ensure that money awarded by federal agencies is being used as intended. Many organizations hire consultants to prepare them for this annual audit. An outside accounting firm must complete your audit within nine months of the end of your organization’s fiscal year.
Net Asset Classifications
For years you’ve been classifying your net assets into three classes: unrestricted, temporary restricted and restricted. The temporary restricted class is being combined into the restricted class, leaving only the restricted and unrestricted classes. This change will impact how nonprofit organizations’ financial statements are presented and is intended to reduce errors.
In the past, the extension process had two parts. The first extension due May 15th (calendar year filers) extended the deadline for three months until August 15th. Then, if additional time was needed, a second extension could be filed on August 15th, extending the deadline another three months until November 15th.
For tax years beginning in 2016, the original May 15th extension will now extend the 990 return for six months, thereby eliminating the need for the August 15th extension. The extended return will be due on November 15th, 11 ½ months after the close of the year.
TOP THREE TIPS
- Take the time to complete journal entries to accurately allocate expenses. When potential donors review your statement of activities, they will see how funds are allocated between program (mission related expenses) and general and administrative (G & A) costs of the organization. This added tier of reporting informs potential donors how much money goes to the purpose of the nonprofit organization. A simple bookkeeping error, like allocating an entire executive director’s salary or the entire amount of the rent to G & A, could give the impression that the organization isn’t allocating as much of their resources to functional uses as they say they are.
- Check the verbiage on any financial documents that donors, potential donors and media can access, such as Form 990. Do the financials match the story being told? Do the financial policies reflect the content? Compare the financials to the verbiage and ask yourself if you would donate. If no, why not? Is G & A too high? Is it misclassified? Depending on how you answer these questions, adjustments may need to be made to the content or financial policies.
- Carefully consider your efforts to increase funds to ensure that they cannot be considered for-profit activities. Collecting any funds from activities that could be considered for-profit puts your exempt status at risk. For example, renting out space or selling advertising on a website could be considered for-profit activities that would generate scrutiny from the IRS.
If you have any questions about changes in nonprofit tax law or how to implement our nonprofit tips, call us today. Our nonprofit experts are ready to help you with your balancing act.