The Final Phase – Keeping Your Nonprofit!
This is the final post in the start up series! Thanks for following along!
To paraphrase Benjamin Franklin, you’ve got a nonprofit, if you can keep it. Now that you have your IRS Determination Letter granting you your status. There are a few additional steps and filings to complete.
State Registration Many states require charities that will be soliciting donations to register with a state office. In Maryland, the Secretary of State’s office Charitable Organization Division maintains those records. The idea is to protect consumers from false solicitations such as professional companies making phone solicitations on behalf of some group and then keeping the majority of the money while the charity only receives a small portion. If you’re planning on raising more than $25,000 dollars, then you are required to register.
Registering is fairly easy. Complete the initial application and provide the supporting documentation. Like the IRS, the state requires an annual financial disclosure form to be completed and submitted after the end of the business year. If you’re not in Maryland, Google your state and charity registration for more information.
Get a Sales Tax Exemption In most states, recognized nonprofits can be exempt from paying sales taxes on the things they purchase to operate. You basically fill out a form and provide supporting documentation such as your IRS letter and you can receive your exemption. This exemption is only on items purchased by the charity. If you’re selling items, it doesn’t exempt you from collecting and remitting sales tax to the state on items you have sold.
This exemption can be a huge help! It means you basically get a 6% discount on office supplies and equipment. If your planning events such as a conference, you’ll save that on food and beverage.
For Maryland, click here or Google your state and nonprofit or charity sales tax exemption
Keeping Your Charity
File annually with the IRS! In the last couple of years, the IRS made news by revoking the tax exempt status of thousands of nonprofits across the country. The main reason? They failed to file annually with the IRS. The vast majority of these nonprofits were extremely small and all-volunteer and most had gone defunct but never notified anyone. If an organization’s revenue and expenses fall under $25,000 they are only required to file the 990-N or the e-postcard which requires ten minutes online to file. For organizations with more revenue, the longer and more detailed 990 forms are required.
Your annual filings are due by the 15th of the 5th month after the end of the taxable year.
- Calendar year, your deadline is May 15th
- Maryland State fiscal year (July 1-June 30) your deadline is November 15th
- Federal Fiscal Year (October 1 – September 30) your due date is February 15th
Make sure you keep your corporation status in good standing. In Maryland, you will need to file annually with the Department of Assessments and Taxation (SDAT) which sends out an annual personal property tax form for completion. Not filing this form will cause your incorporation to no longer be in “good standing” and can jeopardize your ability to legally conduct business in Maryland.
Annual Charity Registration Renewal If you have filed a charity registration with the Secretary of State’s office, you will be required to file an annual return and disclose your finances and provide an updated list of your board of directors. The deadline is within six months of the end of your fiscal year so a good rule of thumb is the same deadline as your annual IRS filing.
Most of these steps are fairly straightforward but missing a key deadline you can lose your tax exempt status. Here are a few tips for managing these various deadlines and agencies and an example document:
- If you’re a small all-volunteer organization, it is easy for these steps to get lost in the transition from one office to another so take some time to create an annual calendar of tasks.
- Digitize your records as much as possible to ease hand off from one officer to the next throughout the years.
- Use a rule of three: three officers as signers on the bank account and three officers with copies of all paperwork. This way if something happens to one person or one set of files, there are backups seeded around. Houses do burn down and people do get hit by buses.
- Keep a resource list handy – good websites, agencies, and helpful organizations who can answer questions about your nonprofit and its status.
If you have any questions, don’t hesitate to contact the proper authorities! My personal experience with the IRS has been very good. I have called them in the past about various sub-chapters of professional associations and they always answer questions, search for missing EIN numbers, and generally help out. Don’t let a problem blow out of control before you seek help.
Enjoy yourself! If you care deeply enough about the mission of the organization to labor through this process, make sure you have fun. If you’re not, something’s not right and you should revisit what you’re doing even if it means taking a step back.