It is common knowledge that tax-exemption is not an easy task; it needs a lot of time and effort to get it done the correct way. Tax exemption recognized by the IRS allows you to devote your financial resources to charitable causes instead of paying taxes. Tax accounting for non-profits includes similar accounting procedures that go into running a proper business.
The first task is to determine the type of charitable organization you run – whether it’s a trust, a corporation, or an association. A charitable organization can be a sole proprietorship or a partnership.
Filing Proper Tax Accounting for Non-Profit
After determining your organization type, the next step is to collect all of the necessary documentation needed for the tax-exempt status. This is one of the most critical steps in developing the procedure for tax accounting. Essential documents could include the articles of incorporation, paperwork related to the trust, or reports of the organization. Ensure that all of the needed documentation is accurate, complete, and does not miss any vital information.
After gathering all of the critical information, you need to complete Form 1023 – Application for Recognition of Exemption Under 501(c)( 3) of the Internal Revenue Code (or Form 1023-EZ). This is about 30 pages long. This is the form that requires all of the necessary information.
Maintain Tax-Exempt Status
Tax accounting for non-profits allows an organization to maintain its tax-exempt status after you are successful in getting the exemption. It is necessary to abide by the various rules and regulations and essential to enlist that the public at large owns the non-profit. The board of directors conducts the management of the organization. The board officers are allowed to make important policy decisions, including overseeing all activities of the non-profit organization.
It is necessary to protect the board of directors from any case of personal liability. Sometimes, it may seem like a difficult thing to do, but the members usually have voting rights, and they use it to make crucial decisions. Such decisions also include making amendments to the organization’s articles or the operational bylaws of the company as well as electing new members of the non-profit organization.
An essential part of having a tax exemption status is to have a detailed record of every transaction conducted while determining the tax accounting for the non-profit. Most organizations use a double-entry transaction system that allows you to have all necessary documentation involved in the paper trails. Under the IRS recognized tax-exempt status, senior management’s responsibility is to restrict particular activities and file all of the paperwork on time when they are due for submission. Tax accounting for non-profits also includes that:
- The organization must not make any contribution to any political campaign.
- The non-profit is not allowed to donate anything to any political party.
- Non-profits are allowed to conduct limited lobbying, but the process is heavily restricted.
- The non-profit must not provide any revenue or profit based on its charitable activities.
- Salaries and other operational costs are permitted.
Increased Scrutiny of Non-Profits
The IRS amplified its scrutiny of charitable organizations around 2007, holding tax-exempt organizations further accountable for what they do. Hence, it is essential to perform proper tax accounting for non-profits. Continual variations in accounting and auditing standards increase costs to the certified public accountant or CPA, but establishments may not have improved their budgets to sanction for that.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.