10 Quick Tips for Dealing with The IRS as a Nonprofit
1. Request a W9 from the start
When you work with a vendor, you may be required to file documentation at the end of the year. The W9 form includes basic information such as, the companies’ legal business name, organization type, and Tax ID. While it seems straight forward, this info can be hard to obtain from a vendor at the last minute. We recommend ALWAYS requesting a Form W9 from a vendor BEFORE they’ve done anything for you. Make a habit of requesting this information at the beginning of your working relationship, and save yourself a great deal of time at the end of the year.You can find more W9 tips in our blog “Best Practice for IRS Form W9”
2. Maintain detailed records
Maintaining adequate records is the only way to prove that your organization deserves its tax exempt status. The IRS recommends keeping any documents that deal with money coming in or going out, all employment tax records, and all records of your assets. Retaining records for three years after the filing year is recommended. However, it is beneficial for you and your board to discuss and implement a record retention and destruction policy. It can be difficult to know what specifically to keep, for how long, and when to destroy the documents. Such a policy will remove any ambiguity while ensuring everyone is on the same page.
3. Be accurate
The information you provide the IRS acts as a representation to the government and your donors that your organization is doing its due diligence as a nonprofit. Make sure that you are filing a complete, accurate return and you’ll save time and energy in the long run.
4. Be honest
Honesty is the best policy, especially when it comes to the IRS. If the IRS finds your information to be incomplete, the consequences can be severe, the least of which results in a rejection of your filings. It could cost you daily penalties and a loss of your 501c3 status. This of course depends on IRS assessment, and how serious they deem the mistake. If they find that you have willingly omitted information, stricter penalties could apply. So avoid the hassle and file like Honest Abe would have.
5. Review thoroughly
Read the instructions of each schedule carefully and completely, and take the time to peruse the FAQ and glossary resources that the IRS offers. If you’re not an accountant, IRS speak can seem like a foreign, alien language. Often, it’s not just that they say things in the most complicated way possible, but they often define things using their own terms.The forms you complete will no doubt contain terms and verbiage that you are unfamiliar with. Recognizing the fact that their documents are confusing, the IRS has composed a Glossary that defines terms you may be unfamiliar with such as their definition of a business relationship.
6. Follow directions
Don’t give the IRS a reason to reject your Returns. Follow directions, and sign your return.Forgetting to check a box can earn you a rejection. So complete all parts and lines, including the yes or no questions. Total all lines, and don’t leave anything blank. Provide all requested information, and most importantly, have the appropriate party sign your return.
7. Send EverythingThis goes hand in hand with following directions. Forgetting to attach a document can lead to a rejection, so triple check that everything you're required to send is present before you stick your IRS package in the mail. It will save you a lot of grief in the long-run.
8. Don’t be late
Filing late can have a maximum penalty of up to 10,000 dollars for a small nonprofit, or $50,000 for a large nonprofit. Save that money for your mission by filing on time. You can find information on when to file your 990 form on Jitasa University.
9. Hire a Professional
As Chron Small Business states, “The tax code is extremely complex. It takes dedicated professionals years to learn the ins and outs of the tax code.” This is especially true for nonprofit tax regulations. Something as little as a donation coded incorrectly or to the wrong account can have a huge impact. Accounting errors can affect budgeting, reporting, tax filing and may even put your organization at risk of losing their 501c3 non-profit status.Gambling on the future of your nonprofit and sacrificing your mission to save on administration costs doesn’t make sense. Any steps that can be taken to protect the reputation and financial risk of your organization should be considered a priority in your budget and organization. Hiring an accounting professional will cost money, but the long term benefits will save you time, money, and could be the difference between success and failure.
10. Respond immediately
Don’t let correspondence from the IRS go unopened. Doing so can have some nasty consequences. Payroll taxes for example, can result in fees of 15% plus the original amount owed. You don’t want to find out that you owe money after you’ve been assessed outrageous fees. Avoid unopened mail by assigning the duty to an employee or volunteer that is present at your location regularly.