The majority of the time, nonprofit organizations are exempt from federal income tax. To reveal their financial information, including income, expenses, and assets, they must submit an annual information return to the Internal Revenue Service (IRS). Here is when the Form 990 is useful. But what if your nonprofit receives cash from unrelated businesses? You might need to submit Form 990-T. You should be aware of the following.
Tax-exempt organizations must file Form 990-T with the IRS to declare their unrelated business revenue. Any revenue a nonprofit organization generates that is unrelated to its main exempt purpose is referred to as unrelated business income. This may include any money derived through ventures like marketing, leasing real estate, or offering goods or services. The organization must submit Form 990-T if its unrelated business income exceeds $1,000.
The majority of small tax-free businesses with gross receipts under $50,000 are excluded from submitting Form 990-EZ. They can instead submit Form 990-N, sometimes referred to as the e-Postcard. However, organizations with total assets under $500,000 and gross receipts of more than $50,000 but less than $200,000 may file Form 990-EZ. Organizations that generate more than $200,000 in revenue or have more than $500,000 in total assets are required to file Form 990.
You could be obliged to send out a 1099-MISC form if you contract with a nonprofit group to do services for your company. However, you are excluded from issuing a 1099-MISC form if the nonprofit organization is tax-free according to Section 501(c)(3) of the Internal Revenue Code and the payment is $600 or more. This is due to the fact that, for tax purposes, the nonprofit organization is not regarded as a vendor or an independent contractor.
The IRS will automatically revoke a nonprofit’s tax-exempt status if it misses three consecutive deadlines for filing its annual information return. As a result, the organization will be liable for paying taxes on any earnings made when it was not exempt from paying taxes. Additionally, gifts made to the charity might no longer qualify for tax deductions.
In conclusion, you might need to file Form 990-T if your nonprofit organization receives unrelated business income. To keep your tax-exempt status and avoid penalties, it’s critical to make sure you file all required tax returns. It is best to obtain advice from a tax expert or the IRS if you have any questions or concerns about the tax requirements your business must meet.