KPMG Spark Blog
Find out more about nonprofit accounting, how it’s different from for-profit organizations, and what you need to know to operate your nonprofit successfully.
The rules, regulations, and specific procedures regarding the operation of a successful nonprofit organization might have been low on your priority list when you began your mission for the greater good. Rather than focusing on profits, as most small businesses do, the emphasis for many nonprofit organizations is on compliance. This ensures accountability to donors, grant funders, and the federal government. For this reason, nonprofit accounting is key to the successful operation of any nonprofit business.
Nonprofit accounting is different from for-profit bookkeeping because it requires a unique approach to support the planning, recording, and reporting of nonprofit finances. This level of accountability keeps the nonprofit in compliance and assures donors and contributors that their funds are being utilized as intended.
Nonprofit accounting includes allowances for donation restrictions. This provides assurance to grant funders that their donations are spent on programs or operations designated for their specific purposes. Organizing nonprofit accounts and following strict guidelines for their designation requires the allocation of funds into either restricted funds, temporarily restricted funds, or unrestricted funds.
Additionally, a non-distribution constraint safeguards any additional funds and requires that all funds be used to further the nonprofit’s cause and not to line the pocketbooks of executives or board members.
Nonprofit organizations that earn less than $50,000 in gross receipts for the year will file a Form 990-N, also known as an e-Postcard. However, any nonprofit organization that earned over $50,000 for the year will be required to file a Form 990-EZ or Form 990.
● Form 990-N: Gross receipts are less than $50,000; You may still choose to file a full return but are not required to.
● Form 990-EZ: Gross receipts are less than $200,000 AND total assets are less than $500,000.
● Form 990: Gross receipts are more than $200,000 OR total assets are more than $500,000.
The tax submission is due on the 15th day of the 5th month after the end of the nonprofit’s fiscal year. If the nonprofit will need an extension for their filing, they may extend the deadline by six months, without showing cause, by filing Form 8868.
Nonprofit bookkeeping is unique and observes specific requirements and guidelines. Equipping your nonprofit with a software platform configured to plan, record, and report financial information correctly will help to streamline your process, safeguard against non-compliance, and support your overall goals for your nonprofit organization.
Outsourcing your nonprofit bookkeeping with experienced tax preparers—like those at KPMG Spark—helps to ensure that experienced accountants are dedicated to the success of your nonprofit organization. Having an efficient online bookkeeping platform with real-time support can ensure that all guidelines are met with ease for your nonprofit.
A nonprofit that wants to be tax-exempt and wants its donors to be able to access tax benefits for their contributions, must apply for tax-exempt status with the Internal Revenue Service (IRS) by submitting Form 1023 and paying a $600 user fee online. After you submit your Form 1023 Application to the IRS, you should receive a letter indicating that the IRS has received your application. If you designated a power of attorney on your application, the IRS should mail a copy of the letter to the power of attorney and to your organization.
If you haven’t received your letter confirming receipt of your application for tax-exempt status, you may check your status by calling the IRS Exempt Organization Customer Account Services toll-free at 877-829-5500. Be sure to have the following information available:
● The name of your organization.
● The organization’s employer identification number (EIN).
● Your application number.
● The date you submitted your application.
● Your title within the organization (must be an officer or director who is legally authorized to represent the organization or someone who has an official Power of Attorney form on file with the IRS).
Finally, you may also check to see if your application has been processed or to ensure your 501(c)(3) status is current by searching your organization’s name on the Internal Revenue Service’s (IRS) Tax-Exempt Organization Search (TEOS).
In addition to helping your nonprofit to comply with nonprofit standards and guidelines, KPMG Spark has a team of accountants who will contribute to your nonprofit’s overall success by providing year-round support, financial information, and guidance using a software platform configured specifically for your nonprofit organization.
You don’t have to tackle your nonprofit accounting on your own. KPMG Spark can provide the bookkeepers and resources to support your nonprofit business during tax prep and throughout the year. Contact KPMG Spark today and visit with an accounting specialist dedicated to your small to medium-sized nonprofit organization’s success and tax preparation.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP.
This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.
The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
KPMG LLP does not provide legal services.
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