Operating a non-profit involves doing good for the community as well as learning to operate within the different legal and tax frameworks you will encounter. Non-profits also have to keep learning as the legal and tax structures change. If you do not learn and adapt, you could lose your non-profit status or incur tax penalties.
SAI CPA Services provides tax assistance for non-profits. We help non-profits understand the tax benefits to which they are entitled and help them claim those benefits within the tax legal frameworks. The purpose of this article is to provide you with the tax and legal non-profit basics.
Non-profit taxes are taxes non-profit organizations are required to pay due to the revenue they generate and the activities they conduct. Tax-exempt status is fraught with legal tax obligations, and every organization must understand them. Some of those obligations include the filing of tax returns and reporting income. Even tax-exempt organizations must pay taxes on unrelated business income and tax unsheltered activities.
While non-profits are exempt from federal income tax, they must also file annual information returns and, in some cases, pay taxes on unrelated business income (UBI) and certain other activities.
There are significant tax responsibilities Non-Profit Entities need to observe. One is obtaining recognition to an exemption status as an entity that qualifies for 501(c)(3) status. As an entity with 501(c)(3) status, it must be adhered to that it is not paying tax on federal income, as long as it follows the standards which pertain to tax-exempt charities. However, it needs to be pointed out that there must be ongoing filings to maintain recognition of this status, as well as constant observance of the associated responsibilities.
Every Non-Profit Entity must submit Form 990 on an annual basis. As a tax-exempt entity, it is required to regularly submit Form 990 to the IRS. This form serves as the entity’s tax form and informative return, in which the IRS and the public can view an overview of the entity’s finances, governance, and other actions. This form is representative of other forms meant for the same purpose, such as 990, 990-EZ, and 990-N, but they differ depending on the size of the Non-Profit Entity. This form must be submitted for the entity to maintain its recognition as an exempt organization.
In exchange, Non-Profit Entities are exempt from certain tax obligations but are required to pay taxes on income that is not aligned with their mission. For example, if a non-profit operates a for-profit business, such as a gift shop, the income from that business is subject to Unrelated Business Income Tax (UBIT).
While federal tax exemptions provide an important tax benefit, state and local tax laws should not be ignored. Non-profits may need to register and file additional forms at the state level depending on the jurisdiction. Also, some states impose taxes on activities or income not directly related to the organization’s exempt purpose.
Non-profit organizations need to withhold and pay employment taxes for their employees. Therefore, non-profits have the same requirements as for-profit organizations with respect to withholding federal income tax, social security, and medicare taxes, as well as unemployment taxes.
Tangible tax benefits to the non-profit organization include:
For non-profit organizations, maintaining compliance with tax regulations is of utmost importance, even when the regulatory frameworks aren’t as complex as for-profit metrics. Incompliance, through the failure to file required forms, misreporting income, or misappropriating exempt funds for non-charitable purposes, can result in penalties, loss of tax-exempt status, and possible legal action.
It is crucial for organizations to have staff and/or professional advisors who understand the specific tax needs of non-profits to avoid the potential damaging consequences of non-compliance.
At SAI CPA Services, we understand this and have provided a complete suite of tax services to non-profits that include:
Understanding and fulfilling tax obligations—as well as properly managing tax deductions—is essential for complying with local regulatory frameworks.
Your organization’s rules should help assess the social programs you offer. SAI CPA Services can help with tax compliance and reporting. Contact us today for a consultation and learn how we can add value to your organization.
SAI CPA Services offers expert tax, accounting, and financial solutions with 25+ years of experience. We ensure accuracy, compliance, and growth.
Copyright © 2025 – Powered by SAI CPA SERVICES
SAI CPA Services offers expert tax, accounting, and financial solutions with 25+ years of experience. We ensure accuracy, compliance, and growth.
Copyright © 2025 – Powered by SAI CPA SERVICES