5 Things to Know if You are New to Nonprofits

Posted on Wednesday, October 03, 2018

1   “Nonprofit” does not mean “no profit”.  Being a nonprofit does not mean that an organization cannot or should not make a “profit.”  Revenues must exceed expenses for the organization to continue to grow and ensure sustainability.  The net income goes back into the organization to further its exempt purpose.

2   No one owns a nonprofit.  The Executive Director is responsible for overseeing the organization’s daily activities and reports to the board of directors who is ultimately responsible for the organization but neither are owners.  Nonprofits provide a service to society and exist to benefit the public as a whole.

3   Nonprofits receive a tax-exemption from federal and state income tax; however, they still may be liable for unrelated business income tax.  Unrelated activities are not substantially related to the furthering the exempt purpose of the organization, are regularly carried on and are considered a trade or business.

4   Nonprofits are required to file an annual information return with the IRS.  Form 990, 990-EZ or 990-N must be filed each year (with limited exceptions) by all nonprofit organizations.  Failing to file this return for 3 consecutive years results in automatic revocation of the organization’s tax-exemption.

5   Private benefit is not allowable.  501(c)(3) organizations must not be organized for the benefit of any private interests.  Nonprofits exist for the pubic good and no part of the organization can be operated for the benefit of a private individual, either financially or non financially.  Engaging in private benefit transactions can lead to taxes or possibly the loss of tax-exempt status.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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