Nonprofit Organizations FAQs

What is a nonprofit?

Although these organizations are called nonprofit, that does not mean that they cannot or should not make a profit. It means that nonprofits, unlike for profit businesses, do not exist to make money for the owners or investors.  Some of the ways nonprofits differ from other organizations is their mission, funding sources, tax exemption, public benefit and transparency requirements

How do I form a nonprofit in Indiana?

Here are the basic steps of creating a nonprofit organization in Indiana; however, you may want to consult your lawyer or accountant before beginning to ensure you are completing all of the steps properly.

Choose a business name. 
Recruit board members.  
File articles of incorporation.
Create bylaws.
Apply for tax exemption. 
File for exemption from state sales tax.  

How do I find information on a nonprofit?

Form 990 is open to public inspection, which means anyone can get access to a nonprofit organization’s return (excluding parts of Schedule B).  In order to comply with this requirement, most nonprofit organizations post their 990 on their website.  Following are other sources for Form 990 and other information: GuideStar, National Center for Charitable Statistics, IRS and Better Business Bureau.

What are the differences between nonprofit and for profit accounting?

In both nonprofit and for profit accounting, the goal is the same – to provide accurate and timely financial information to users for decision making.   There are significant differences though between accounting for nonprofit and for profit entities starting with what the users of the financial statements are focused on.  For profit stakeholders are focused on profitability and the bottom line while nonprofit stakeholders are more concerned with achieving the organization’s mission and allocation of resources.

What form is my nonprofit required to file with the IRS?

Nonprofit organizations are tax exempt and do not file income tax returns.  However, the IRS still wants information on a nonprofit’s programs and activities and therefore, requires nonprofits to file informational returns.  The federal form required to be filed is based primarily on your organization’s receipts and assets. 

What documents are nonprofits required to disclose to the public?

In return for being tax-exempt, nonprofit organizations described in section 501(c) or 501(d) are required to disclose certain information to the public.  These include the organization’s annual Form 990 and application for exemption.

Does my nonprofit need an audit?

As a nonprofit, you may be required by your board of directors or funders to have audited financial statements.  If the organization is an Indiana entity that receives state and government assistance, the state of Indiana may require an audit. The organization should also review its bylaws to see if there is a requirement for a specified level service included in the organization’s governing documents.

What documentation should nonprofits provide donors?

It is good practice for nonprofit organizations to provide each donor making a contribution of $250 or more with a written acknowledgement to lessen the burden on their donors of obtaining documentation to receive a charitable deduction. Many nonprofits make it a practice to provide thank-you letters to donors which provide the necessary information for the donor.

Does my nonprofit have unrelated business income?

Nonprofits are required to pay tax on unrelated business income.  The IRS defines an activity as unrelated if all three of the following are met for the activity.

It is a trade or business.
It is regularly carried on, and
It is not substantially related to furthering the exempt purpose of the organization.

Do nonprofits pay property taxes?

Certain property that is owned, occupied and used predominately for charitable, religious, educational or scientific purposes may be exempt from property taxation.  To obtain an exemption, the property owner must file a property tax exemption with the county assessor where the property is located.

What is the difference between the cash basis of accounting and the accrual basis of accounting?

It is important to understand the different methods that can be used to record an organization’s revenues and expenses.  There are two principal methods of accounting for nonprofits, cash and accrual, with a third type called modified cash that combines aspects of both methods.  The basic difference between the cash and accrual method is whether the transaction is recorded now or later.

What is the difference between an audit, review and compilation?

There are three types of reports issued by CPAs – audited, reviewed and compiled financial statements. The type of report depends on the level of service provided by the CPA.  Compilations provide no assurance.  Reviews are one step up from a compilation and provide limited assurance. Audits involve inquiry and analytical procedures, similar to reviews, but also require the auditor to gain an understanding of the organization’s internal controls and include confirmations of balances by outside sources. 

What is the difference between an employee and independent contractor?

Payments made to employees and independent contractors are treated differently. There are three issues that must be considered in determining if the individual is an employee or an independent contractor.

Behavioral Control
Financial Control

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