Filing Tax Exempt? Avoid These Common Mistakes

Filing tax exempt is completed by non-profit organizations and is recognized by the IRS. Non-profits are required to make the same filing of their tax situation as other business entities, even though they are often exempt from paying taxes. When filing a tax return for a non-profit organization, there are some common mistakes that can be avoided in order to complete a successful filing that does not result in additional questions.

Filing the Form 990-N

A non-profit organization makes a tax return filing on Form 990, 990-N or 990EZ. The appropriate form will depend on the amount of contributions the organization receives in a tax year. Organizations that are not required to file a tax return with the IRS must file an informational notice called the Form 990-N or postcard. The postcard provides the IRS with confirmation that the annual gross receipts of the organization are less than $25,000. Failure to file this notification postcard for 3 consecutive years will result in the non-profit organization losing its tax exempt status.

Filing the Form 990, 990EZ

A non-profit that makes more than $25,000 in annual gross receipts or contributions files the Form 990 or 990EZ.  These forms must be filed by the non-profit within 60 days of the close of their fiscal year, as indicated on their initial filing form for tax-exempt status with the IRS. A common mistake made by non-profits is not filing a 990 within the required time or requesting an extension of time like individual taxpayers in order to properly prepare their tax filing.

Maintaining Proper Records

Although non-profit organizations are generally exempt from paying taxes on their annual gross receipts received from donors and contributors, a non-profit must keep notes and records of all transactions, both receipts and expenditures made. Maintaining incomplete or poor records is a common problem for many non-profit organizations, especially smaller ones.  Failing to maintain proper records will result in additional information requests from the IRS and may result in fines or penalties.

Addition Errors

Common to all taxpayers, is making sure that financial information adds up. Adding errors, including the transposition of numbers on the form, results in a miscalculated tax liability or over or understatement of revenue. All preparers should check their math frequently when entering financial data, even if they use tax preparation software for the forms.