What are the tax and reporting requirements of nonprofits?
All tax-exempt organizations must file certain reports with federal, state and local authorities. Because of distinctive state and local requirements, it’s important that you consult with your legal counsel and accountant to ensure that the necessary paperwork is being filed for your organization.
That said, at the federal level, you’ll definitely need to file one of the following:
- Form 990, Return of Organization Exempt from Income Tax, or
- Form 990-EZ, Short Form Return of Organization Exempt from Income Tax
- 990-N (e-postcard) for exempt organizations that normally have less than $50,000 in gross receipts
See Legal for more information regarding these forms and requirements in the state of California.
In terms of paying taxes, exempt organizations are exempt from income taxes, but they are still required to pay payroll taxes. Typically these are withheld from employee paychecks and paid quarterly. Be sure to file and pay on time. Willful failure to pay is a felony under federal law and the interest and penalties for late filing can add up quickly.
The IRS provides an Exempt Employer’s Toolkit (www.irs.gov/charities/article/0,,id=172794,00.html), which includes all of the forms that must be filed by organizations that have employees.
In addition to federal requirements, you’ll need to file payroll taxes with your state and, in some cases, locally. Check with your state’s Department of Revenue to determine when and where to file payroll taxes.
Another factor to consider at the state and local level is the need to collect sales tax. If you engage in the sale of taxable goods and services, you may have to collect and remit sales tax. Check with the Department of Revenue in your state to determine whether this applies to you and, if so, the required process.