Ensuring that a nonprofit is established legally requires significant time and effort spent filling out legal filings and forms, organizing statements and budgets, and pouring through charts and graphs. Generally, the necessary paperwork falls into two or more of the following categories:
- IRS forms and filings – depending upon the organization federal tax forms are filed as often as quarterly
- State filings – state level filing occurs most often once per year
- County –even though an organization is tax exempt, some areas require that exemption forms are filed yearly
- City – some cities or towns have a yearly filing in addition to a city sales tax. Depending upon the specific area, an NPO may be exempt from both.
Even with an accepted 501(c)(3) status, NPOs are often responsible for some amount of tax liability. The Unrelated Business Income Tax typically applies to related business enterprises that have been deemed “successful.” Since all proceeds must remain in the business, if an NPO cannot find a use for any extra capital by the end of a fiscal year or quarter, it may become taxable income. Nonprofits with realistic expectations of likely business profits and donations can incorporate these figures into a budget and avoid taxes through efficient use of received capital.
