Non-Profit Organization Accounting; Bookkeeping; Tax Preparation Questions and Answers
Updated: Apr 20, 2019
We can help you setup and maintain your non-profit organization's tax-exempt status by handling all the IRS reporting for you.
Each year the IRS requires most tax-exempt organizations to submit the Form 990 and its relations, which includes the following items.
Income Statement with very specific revenue and expense categories like donations, salaries, postage, rent...
Balance Sheet with specific categories like cash, accounts receivable, accounts payable...
Functional Expense Statement with all the expenses allocated to either program services, fundraising, or operations.
Individual Program Expense Statement that reports all of the expenses for each program or service like seminar programs or educational mailings.
Revenue Support Schedules that detail the organization's sources of income in specific categories like charitable donations, membership fees, investment income.
The IRS uses these very specific revenue and expense classifications to determine if your organization will retain its tax-exempt status. So it's imperative that you build your accounting system around these revenue and expense classifications.
Here's what we do for you...
Review and compile your financial statements
Design, install, and maintain your Accounting System
Weekly, bi-weekly, or monthly payroll preparation
Payroll Tax Preparation and Deposits
Provide training for your accounting personnel
Complete and file your non-profit status application
Provide training for your board on non-profit financial statement usage and effective budgeting practices
Prepare and file the 990 and 990T tax forms
Prepare your initial start-up documentation, including incorporation, federal employee identification number (FEIN), and payroll setup with federal and state agencies.
Churches: We prepare the pastoral housing allowance and other required benefit documentation to meet the complex dual status of ministers.
If you're starting a new not-for-profit organization we can help you prepare your organization's 501 (c)(3) application for tax-exempt status.
Here's what's needed...
Articles of Incorporation containing the Exempt Purpose Statement as described in IRS Code section 501(c)(3) and defined in Treasury Regulation 1.501(c)(3)-1 Paragraph d and the Dissolution Statement described in Treasury Regulation 1.501(c)(3)-1 Paragraph b subparagraph 4 ("Organizational Test").
Employer Identification Number
By-laws of the Organization
Minutes of Board Meetings
Names, Addresses, and Resumes of Board Members
Names and addresses of all Active Members
Inventory of Assets like cash, furniture, equipment, property, pledges...
Inventory of Liabilities like mortgages, accounts payable, loans...
Rent/Lease Agreements and Contracts
Revenue and Expense Statements for the last four years or as far back as possible if your organization has been in existence for less than four years.
Written Reason for Formation and History of the organization.
Organization Mission Statement or Statement of Faith or Beliefs for Churches and other Religious Organizations.
Organization Activities, Operations and Programs Documentation including your statement of purpose & operations, food programs, fundraisers, flyers/brochures/pamphlets...
Financial Support Documentation including all sources of revenue like contributions, tithes, offerings, fundraisers...
Fund Raising Program Descriptions
IRS Processing/Filing Fee
We are happy to prepare any of these items if you need help.
Q: Twice this month I’ve been in meetings with a board who said they don’t consider grants as operating dollars. How can that be if grants include operating dollars?
A: I’ve volunteered and worked with many nonprofits that receive grant dollars, and I’ve never thought of them as anything other than operating unless they were specifically designated to a project that didn’t include regular operations at all. Depending on the nature of the grant, I don’t always count on them as recurring when it comes to budgeting or strategic planning. I think it’s a good idea to delineate funding sources into categories such as grants, sponsorships, contributions, program revenue, etc. It’s good for a nonprofit to understand their funding streams and ensure they are not too reliant on any one stream.
Q: When is QuickBooks no longer viable for a nonprofit?
A: I’m a proponent of QuickBooks. So I don’t know that I have a scenario where I’d say it’s no longer viable. There is a more expensive version of QuickBooks (Enterprise edition) that might be more appropriate depending on the size of the organization, but that’s just a scale issue. That being said, I don’t view QuickBooks as a fully integrated donor management system. Most of the organizations I’ve had experience with will use some kind of external donor management software either independently or integrated into QuickBooks. I’m certainly open to the idea of a software suite that might provide efficiencies with a more all-encompassing nonprofit focus.
Q: What do you think about a board referring to and thinking about their programs as profit centers?
A: QuickBooks has a class tracking function, which I often hear referred to interchangeably as profit centers. We use this feature for a lot of our nonprofits. Many nonprofits find it helpful both internally to have an idea of income and expenses that are program specific for management analysis, and externally to help make the case for program-specific needs. I know there are judgment allocations (occupancy, utilities, staffing in a lot of cases), so it’s not generally perfect, but if done properly it’s still a good tool for decision making.
But those decisions must be in the larger context of the organization as a whole — not just the program on an island. For instance, I have served on a board that offers a program which operates at a deficit. The organization as a whole can absorb the loss and the program itself advances the mission of the organization. Knowing the program operates at a loss provides the incentive for other fundraising or sponsorship opportunities, and to limit wildly expanding the program to an unsustainable level. However, this knowledge doesn’t jeopardize the existence of the program because of the qualitative value it offers to the overall agency mission.
Q: For a nonprofit with varied operational costs, is there a concern if members purchase needed items and get reimbursed versus having accounts with various businesses? Or is a purchase credit card a better way?
A: From an accounting point of view, it's much easier to have a card than to process reimbursements. Just make sure the cards have appropriate spending limits and staff are educated on policies and procedures for use. This also requires oversight to see those policies are being followed and receipts are being turned in with the appropriate coding and approval.
Q: I’m on a board of directors of a nonprofit with an operating budget of $230,000. We’re trying to decide when it’s time to start requiring an annual audit. What do you think?
A: An audit is a big financial step for an organization to take. That being said, the Board has a fiduciary responsibility to ensure the fiscal viability of the organization. This should be done through oversight of financial policies, careful review of financial statements in comparison to budgets and/or historical performance, and open discussion. An audit is a supplement to these activities, not a replacement for them. If the organization has a strong Treasurer/finance committee in place, and the Board has a good understanding of its role, I would be hesitant to require an audit until completely necessary — either by statute (federal or state depending on funding sources and/or size) or from specific grant requirements.