Nonprofit organizations face unique tax obligations that require careful planning to maintain compliance and maximize financial efficiency. As the 2024-2025 tax seasons approach, nonprofits should adopt proactive strategies to strengthen their financial health while staying aligned with evolving tax laws.
1. Stay Updated on Tax Law Changes
Nonprofits must remain current on federal, state, and local tax laws. Key updates from the IRS, such as changes in reporting thresholds for Form 990 or adjustments to charitable contribution deductions, can significantly impact compliance. Subscribing to IRS updates and consulting tax advisors can prevent costly filing errors.
2. Ensure Proper Tax-Exempt Compliance
Maintaining tax-exempt status is critical. Nonprofits should regularly review their mission statements, operational activities, and revenue sources to ensure alignment with their exempt purposes. Conducting annual compliance audits can identify risks before tax filings
3. Maximize Charitable Contribution Deductions
Nonprofits should develop robust donor acknowledgment systems to ensure contributions are tax-deductible. Offering detailed receipts that meet IRS requirements can encourage donors to contribute more, enhancing fundraising potential while ensuring tax compliance.
4. Optimize Unrelated Business Income (UBI)
Nonprofits generating income from unrelated business activities must manage UBI to avoid tax liabilities and potential IRS penalties. Separating UBI from exempt revenue through distinct accounting practices can reduce risk. Where feasible, consider restructuring revenue-generating activities to align more closely with the nonprofit’s mission.
5. Leverage Tax Credits and Incentives
Nonprofits may qualify for tax credits, such as the Employee Retention Credit (ERC) if still applicable. Researching available local and state tax incentives for hiring, green energy projects, or community development can provide additional financial relief.
6. Strengthen Financial Reporting Practices
Accurate and timely financial reporting helps avoid late filing penalties. Automating accounting processes through nonprofit-specific software can streamline record-keeping, reducing administrative burdens while ensuring compliance.
7. Conduct Board and Staff Training
Training key personnel on tax compliance, financial management, and legal responsibilities can reduce errors and enhance organizational resilience. Contact Hood & Strong’s nationally recognized Not-for-Profit Service Group to help you navigate the 2024-2025 tax landscape with greater confidence, ensuring both compliance and financial sustainability.
