Since nonprofit organizations do not generate any revenue, a common misconception is that they are exempt from filing tax returns. This is untrue, though. The failure to file tax returns by nonprofits may result in fines and potentially the loss of the organization’s tax-exempt status.
Although nonprofit organizations are not required to pay federal income taxes, they must nonetheless submit an annual information return to the IRS. The IRS needs to receive information from this return, also known as Form 990, concerning the organization’s finances, operations, and governance. On the fifteenth day of the fifth month following the conclusion of the organization’s fiscal year, the form is due.
The filing requirement has various exceptions. Form 990-N, an electronic postcard that includes basic information about the organization, can be submitted by nonprofits with annual gross receipts of less than $50,000. Churches and several other religious institutions are also exempt from the Form 990 filing requirement.
The IRS must issue nonprofits with an Employer Identification Number (EIN). The organization is identified for tax purposes by its exclusive identification number, or EIN. To open a bank account, submit grant applications, and hire staff, nonprofits require an EIN. A company needs an EIN to file its yearly information return even if they have no workers.
In conclusion, tax returns for nonprofit organizations must be filed with the IRS. Despite being exempt from paying federal income taxes, they are nonetheless required to report information to the IRS about their operations, governance, and finances. In order to conduct business and submit their yearly information return, nonprofits must also obtain an EIN from the IRS. To avoid fines and keep their tax-exempt status, nonprofits need to be aware of their tax duties.