non-profit tax return and calculator

Filing a Non-Profit Tax Return

Charitable organizations are exempt from paying state and federal income taxes, but that doesn’t mean you don’t have to file anything with the IRS each year. In this article, we’ll explain how to obtain 501(c)(3) status, what information is required for a 501(c)(3) tax return, and how and when to file one. After we cover federal tax returns for non-profits, we’ll move to the state level to explain how to get tax-exempt status in Virginia and what forms need to be filed each year. If you have questions, feel free to reach out to our business banking team–we’re always here to help!

Non-Profit Tax Status

To be considered a non-profit legally for tax purposes, you must apply for exempt status as a 501(c)(3) from the IRS. The most common types of 501(c)(3) entities are charitable organizations, religious groups, private foundations, some political organizations, and others such as civic leagues, social clubs, and more.

To earn tax-exempt status, your non-profit organization must meet the IRS’s eligibility requirements.

  • Cannot serve private interests.
  • Net earnings cannot benefit private shareholders or individuals.
  • Earnings can only be used to advance the non-profit’s charitable mission.
  • Cannot engage in activities to influence legislation or participate in campaign activities for political candidates.
  • Employees must be paid fair market value for their position.
  • Must stay faithful to the organization’s founding purpose.

To apply for tax-exempt status, there are different forms depending on the type of non-profit.

IRS Form 990

Form 990 is the annual information return filed by tax exempt organizations, non-exempt charitable trusts, and section 527 political organizations. In addition to being filed with the IRS, these returns are usually available to the public upon request. The information on form 990 can shape public perception of an organization. This includes the organization’s activities, finances, governance, and more. While all exempt organizations must complete Parts 1-7 of Form 990, additional schedules may be required depending on the type of organization and its activities. The most common types are:

  • 990-N (e-Postcard): For organizations with gross receipts not exceeding $50,000. The eight-question online form allows you to quickly record data. Asks for EIN, Tax Year, legal name and address, principal officer name and address, URL, and confirmation of tax receipts under $50,000.
  • 990-PF: For private foundations, regardless of financial status. Requires a report on private assets, trustees and officers, grants, and financial activities.
  • 990-EZ: Organizations with gross receipts less than $200,000 and total assets less than $500,000. The four-page form includes a statement of financial position, record of projects and accomplishments, itemized grant information, membership dues, salaries, occupancy and rent, printing and publications, and more.
  • 990: Gross receipts at or above $200,000, or total assets at or above $500,000. The 11-page form includes the organization’s mission, number of voting members, details of the organization’s program service accomplishments of the three largest program services by expense, list of officers, directors, trustees, key employees, and highest compensated employees, as well as a full report on expenses

On every type of form, you can expect to provide the following information:

  • Your organization’s mission statement
  • Financial details such as revenue, expenses, liabilities, and assets
  • All activities (including any new program services) carried out throughout the year
  • Names and information of staff, directors, managers
  • Accomplishments to validate tax-exempt status

As of July 2019, with the Taxpayer First Act (Provision 3101), the 990 forms must be filed online.

Do not include any personal identifying information on Form 990

Non-Profit Tax Return Deadlines

Non-profit tax forms are due on the 15th day of the 5th month after the conclusion of the organization’s fiscal year. If you operate on the calendar fiscal year, your due date would be the 15th of May. If you can’t make that deadline, you can file Form 8868 to request a six-month extension. It’s generally recommended that organizations file for an extension if they plan on conducting a financial audit.

Penalties For Late Filing

  • Receipts less than $1,000,000: $20/day if the return is late. The max penalty is $10,000 or 5% of gross receipts, whichever is less.
  • Receipts more than $1,000,000: $100/day if the return is late. The max penalty is $50,000 or 5% of gross receipts, whichever is less

If you fail to file three years in a row, you run the risk of your 501(c)(3) status being revoked.

If you fail to submit a tax return you will go through auto-revocation

How To File a Non-Profit Tax Return

As stated above, non-profit tax forms must be filed online. We recommend hiring an accountant or tax professional to help you ensure accuracy. When hiring a tax advisor, follow these tips:

  • Look at pricing, hidden fees, and expenses.
  • Has the accountant worked with similar organizations? They will have more experience and expertise to work through your forms.
  • Check their reviews and recommendations.

Virginia State Tax Filing For Non-Profits

To qualify for exempt status in Virginia, you must meet the following standards:

  • Be exempt under Sections 501(c)(3), 501(c)(4), or 501(c)(19).
  • Show proof of compliance with Virginia law for organizations that solicit contributions in the Commonwealth.
  • The organization’s annual administrative costs, including salaries and fundraising, must not exceed 40% of its annual gross revenue.
  • If your organization’s gross annual revenue is at least $750,000, you must provide a financial review done by an independent CPA.
  • If gross annual revenue is at least $1 million, a financial audit may be required instead of a financial review.

Once you have exempt status for Virginia tax purposes, follow these steps to file a state return for your non-profit.

Charities in VA must renew their registration annually.

About F&M Bank

We are headquartered in the Shenandoah Valley, with a network that spans the I-81/I-64 corridor from Winchester to Waynesboro and beyond. Founded in 1908 to serve farmers and merchants in Western Virginia, we are more committed than ever to the success of the ag industry, small businesses, and the non-profit sector. Check out our checking account for non-profits with our Local Promise Deposit Account Package. We offer a variety of services to help you run your non-profit efficiently and effectively. For more information on non-profits, check out our Guide to the Best Non-profit Resources in the Shenandoah Valley and Beyond!