Making Tax Season a Breeze

If you are an operations leader, you know what the first quarter of each year brings: Tax season. The period of time can be especially challenging for non-profit advocacy organizations. Beyond the usual financial reporting, these organizations must navigate complex compliance requirements that are crucial for maintaining their tax-exempt status and public trust. Here are three key considerations to keep in mind during tax time:

1. Understand the Nuances of Lobbying Expenditures

Non-profit advocacy groups often engage in lobbying activities to advance their missions. However, it's essential to distinguish between permissible lobbying and activities that could jeopardize tax-exempt status.​

• Define Lobbying Activities: Understand what constitutes lobbying under IRS rules. Direct lobbying involves attempts to influence legislation, while grassroots lobbying appeals to the public to contact legislators.​

• Track Expenditures Accurately: Maintain detailed records of all lobbying-related expenses. This includes staff time, materials, and any other costs associated with lobbying efforts.

• Stay Within Limits: Ensure that lobbying activities do not exceed the IRS's expenditure limits for your organization type. Exceeding these limits can result in penalties or loss of tax-exempt status.​

2. Maintain Comprehensive Financial Records

Accurate financial record-keeping is the backbone of compliance and transparency.​

• Document All Income and Expenses: Record every financial transaction, including donations, grants, and operational expenses.​

• Separate Restricted and Unrestricted Funds: Clearly distinguish between funds with donor-imposed restrictions and those without. This ensures proper allocation and reporting.​

• Prepare for Audits: Organize financial documents in anticipation of potential audits. Being audit-ready demonstrates accountability and can expedite the process.​

3. File Required Tax Forms Timely and Accurately

Timely and accurate filing of tax forms is non-negotiable for non-profit organizations.​ Using a trusted tax professional can greatly ease the compliance burden. Even if you use a professional accountant, you need to provide timely and accurate updates to ensure your tax forms can be prepared on time. 

• Identify the Correct Information: Determine which IRS Form 990 variant applies to your organization based on its size and type. Collect the information needed for the form as far in advance of Tax Day as possible.

• Report Unrelated Business Income: If your organization has income from activities unrelated to its exempt purpose, report it using Form 990-T.

• Don't Assume It's All Covered: Even if you’ve hired a CPA or tax firm, your team still needs to review the return before it’s submitted. Make sure leadership understands what's being reported, that financials are current, and that narratives (like your mission description or program summaries) reflect your organization accurately.

Navigating tax season requires diligence and a clear understanding of the regulatory landscape. By focusing on lobbying expenditure limits, maintaining comprehensive financial records, and ensuring timely and accurate tax filings, non-profit advocacy organizations can uphold their integrity and continue to effect meaningful change.​