Nonprofit work is incredibly rewarding, but in a sector that relies heavily on donor support, success relies heavily on the ability to demonstrate a return on investment. As your organization grows, private donors, foundations and government entities will likely request detailed accounting documents to ensure that they are giving to an organization that is on the up and up, so accurate record keeping is an essential component of nonprofit management. Nonprofits are required to comply with certain tax requirements in order to receive donations and maintaining impeccable records will also make life easier when tax time rolls around.
Questions often arise around the receiving and processing requirements for different donations, including noncash gifts such as vehicle donations. For noncash gifts over $500, for example, the filing of an IRS Form 8282 may be necessary within 125 days. If the noncash gift is over $5,000, Form 8283 must be attached to the organization’s tax return, along with providing the form to the donor. Failure to comply with these types of tax requirements can lead to penalties, which is another reason that understanding them is imperative.
Here are some tax requirements to keep in mind for your nonprofit organization:
- In order for donors to claim a charitable exemption for a contribution of $250 or more on a Federal income tax return, they must receive written acknowledgment from the receiving organization. Not only is supplying a formal donation acknowledgment important for donors, it is also a best practice in the nonprofit world. This document can be a letter, postcard or even an email.
- Nonprofit organizations are required to provide a written disclosure to any individual who receives goods or services in exchange for a single gift of $75 or more.
- Along with Federal tax requirements, nonprofit organizations are also expected to comply with State tax requirements.
- Raffles that involve the “purchase” or tickets can be particularly tricky when it comes to nonprofit tax requirements. Winnings may need to be reported to the IRS and certain State requirements apply to the process.
Tax requirements for nonprofits are complex, and ensuring that your organization remains in compliance can feel overwhelming. Contact our CPAs for guidance and feedback on your recordkeeping practices and how a nonprofit audit might help your organization. We will consider all factors and what will work best for your organization. Contact us to discuss your goals and needs at (925) 933-2626 or, email us at email@example.com.