As a new nonprofit founder, you have a lot on your plate to launch your mission-driven initiatives. One of the first and most important items you should tackle when getting your nonprofit up and running is to become a 501(c)(3) organization under the IRS.
A 501(c)(3) designation exempts your nonprofit from paying taxes. Every dollar counts when pursuing your mission, especially for small nonprofits, so maintaining this status is crucial.
Filing for (and maintaining) 501(c)(3) status is a pain point for many nonprofit professionals, but it doesn’t have to be. By e-filing your tax forms, you can rest assured that you’re maintaining compliance with the IRS and securing as much money as possible for your cause. Let’s dive into some key tips for filing so you can start your nonprofit activities off on the right foot.
Understanding Nonprofit Taxes
Before we explore tax e-filing, let’s review the most important parts of nonprofit taxes that you should know:
- 501(c)(3) requirements: Nonprofits need to file IRS Form 990 each year to remain tax-exempt. According to IRS guidelines, 501(c)(3) organizations need to be organized for charitable purposes, avoid political activity, and comply with other national and state requirements.
- Form 990 filing deadlines: Nonprofits need to file Form 990 by a certain deadline each year, or they face penalty fees and the possibility of losing tax-exempt status. This deadline falls on the fifteenth day of the fifth month after the end of your organization’s fiscal year, so it varies for each nonprofit. Most nonprofits end on June 30th or December 31st, making the most common filing deadlines May 15th or November 15th.
- Types of Form 990: Form 990 is the main form that all nonprofits need to file to verify and secure their tax-exempt status. Depending on your nonprofit’s gross receipts, you can fill out different types of Form 990. Nonprofits with under $200,000 in gross receipts can file abridged versions of Form 990 known as Form 990-N or Form 990-EZ.
These are just a few of the essential facts you need to know before diving into the details of e-filing. There are many details that only apply to certain nonprofits, and you should dedicate time to exploring them. To learn more, review the IRS website for 501(c)(3) organizations and ask more experienced colleagues in the space for advice. If you have the room in your budget, you could also work with a nonprofit financial advisor to get up and running.
9 Benefits of E-Filing Nonprofit Taxes
For some new founders, the prospect of picking up a new software solution can seem inconvenient, if not downright daunting. However, choosing an e-filing platform can streamline your tax season and help you cultivate better financial habits. By leveraging an e-filing solution, your nonprofit can:
- Build long-term financial stability. The managerial decisions you make in the early moments of your nonprofit can determine your success for years to come. NXUnite suggests proactively storing data in your e-filing software so you can see financial trends over time and make data-driven decisions that foster growth.
- Stay organized. Every manager’s worst nightmare is rummaging through paper records in old filing cabinets for hours on end. Once you configure your e-filing software, you can save important financial data in a centralized location so you know exactly where to find information should you need it.
- Protect the environment. Once you’ve transferred your physical records into a digital database, you’ll never have to worry about wasting paper on financial statements ever again.
- File taxes faster. Form 990 can take weeks, if not months, to fill out using physical records. By auto-filling information from past records and quickly sending completed forms to the IRS, e-filing can save your nonprofit precious time that can go towards mission-critical activities instead.
- Accurately fill out Form 990. An e-filing software solution will automatically flag when your organization has left out information on your form so you can fix any errors before you submit.
- Stay on top of deadlines. Many nonprofit professionals are extremely busy, especially new founders, and filing deadlines can quickly sneak up on you. E-filing software can automatically remind you when you need to file to get your forms submitted on time and avoid penalties.
- Reinforce trust with supporters. Once your nonprofit submits Form 990 and the IRS reviews it, the information is released to the public. As previously mentioned, e-filing platforms check that all of your financial data is correct before submitting the form. This is great for ensuring financial transparency and boosting donor retention.
- Demystify tax rules for new founders. With a few simple prompts during the setup process, the e-filing solution can determine exactly which forms your nonprofit needs to fill out, taking the guesswork out of tax filing for new founders.
- Save money. While nonprofit accountants are available to help with your taxes, it isn’t a financially sound decision for many new founders. Most e-filing software solutions cost under $100 per filing, saving you hundreds of dollars in startup costs that can go toward your cause.
Of course, all of these benefits vary by the software solution you choose. Let’s explore what the best e-filing software solutions will offer as features.
Choosing the Right E-Filing Software
Now that you know all of the advantages e-filing software offers, you might be excited to get started. But first, it’s important to analyze your nonprofit’s needs and budget so you can pick a solution that fits your organization. According to File 990, these are some top features that you should consider:
- IRS certification
- Cost-effectiveness
- Budget-friendliness
- Data security
- Cloud-based accessibility
- Customer support
- Training resources
- Integration with financial management software
- Ability to file the nonprofit tax forms you need
- Reporting and analytics
To pick the right software for your nonprofit, you’ll need to research the options available, schedule demos, and ask questions to the customer support team. Then, narrow down your options until you have a clear winner!
Being a new nonprofit founder is a huge job. Fortunately, the right e-filing software can take some work off your plate and help your new organization establish itself and thrive for years to come!