Basic Non-Profit Financial Guidelines and Documentation Requirements

Nonprofit organizations are considered exempt from federal income tax under Internal Revenue Code Section 501(c)(3). Most organizations have to apply with the Internal Revenue Service (IRS) to receive this tax status. After receiving a 501(c)(3) classification, nonprofits must follow guidelines for reporting and disclosing their finances to the IRS and provide donation documentation to donors.

Form 1023

Nonprofits must make Form 1023, which is used to apply as a nonprofit with the IRS, available to the public. Annual information returns filed with the IRS must also be made available to the public for a period of three years following the filing of Form 990, 990-EZ or 990-PF. A nonprofit must have these records available during business hours and offer copies upon request. This disclosure allows contributors and other interested parties to monitor the financial status of the nonprofit and can help immediately curb unsubstantiated chatter concerning spending. If anyone questions your organization's finances in passing, you can direct them to a readily available tax document and refrain from entering into a personal discussion until they are more informed.

Non-Profit Information Returns

Nonprofit organizations must file an annual information return. The nonprofit information return is IRS Form 990 or one of its variations such as 990-EZ or 990-PF. 990-EZ is for nonprofits with less than $500,000 in gross receipts and total assets of less than $1,250,000 at the end of the year. Depending on your particular situation, Schedules attached to Form 990 may need to be filed also. The return must be filed by the 15th day of the 5th month after the nonprofit's accounting period ends. If a calendar year is observed, May 15th would be the deadline.

Non-Profit Recordkeeping

A nonprofit has to retain all documentation that supports the financial figures reported in an annual return as well as documentation concerning non-financial activities. The IRS states that it does not require a specific type of record-keeping, only accuracy. It is important to separate your non-profit organization's sources of support within your records. The IRS uses your support records detailing contributions, grants, sponsorships and other sources of revenue to determine whether your organization should be classified in future reporting years as a public nonprofit or private foundation nonprofit.

Donation Documentation

Because donations to nonprofits are tax-deductible, there are guidelines dictating the amount of documentation needed for donations at various levels. A nonprofit should be prepared to issue a written acknowledgment to donors who make a single donation of $250 or above. A written disclosure should be issued to donors who make payments of $75 or greater. Advise donors to retain a check stub or credit card payment receipt for a donation as well as the paperwork provided by your organization to receive a tax credit. Donors should archive this receipt with their completed income tax return for the year.

It is important to fully understand a few basic financial guidelines concerning non-profit finances and documentation before delving into more complex tax issues.

Sources:

"Applying for 501(c)(3) Tax-Exempt Status." IRS.gov.
"Form 990 Resources and Tools for Exempt Organizations." IRS.gov.
"Instructions for Form 990 Return of Organization Exempt From Income Tax." IRS.gov.
Personal experience as a small business owner with regular non-profit involvement.