We’ve talked about the benefits of the advice of a savvy accountant for a for profit business, but nonprofits need a great accountant on their team, too. Why would a nonprofit need an accountant if they don’t need to pay taxes? Why, to keep you from needing to pay taxes, of course!
Nonprofits are exempt from taxes in general, but there are some exceptions. Nonprofits can also be subject to penalties from noncompliance with various IRS rules and pronouncements. Here are some things you should be thinking about:
- Are you conducting any activities that could generate unrelated business income, which is taxable even to a nonprofit (think gift shops and snack bars, depending on the type of organization you have)
- Are you following all the IRS rules about acknowledging contributions correctly
- Are you accepting gifts of art work, cars, boats or other unusual property
- Are any of the gifts you receive restricted by your donors for a specific project or purpose
- Have you classified your employees properly as either employee or independent contractor, and can you tweak the way any staff members work to reduce your employer tax responsibility
- Do any of the fringe benefits you offer your employees end up creating taxable income to you (yes, that actually can happen)
- Has anyone given you an interest in a partnership as a gift
- Are you making grants directly to individuals, or grants to individuals or entities outside the US
These are just some of the things that can cause a nonprofit to be subject to tax or penalties if not dealt with properly, and not all of them are common sense. Whether or not you’re required to produce audited financial statements, make sure you have an accountant on your team that can help you review these and other financial practices outside of the routine context of completing your 990.