Four Important Tax Tips for Nonprofits

As the close of the calendar year approaches, it may seem to be too early to start thinking about tax season. On the other hand, now may be the best time for nonprofit leaders to begin gathering the advice – and the documents – that they’ll need to maintain their organization’s tax-exempt status for 2021. These four important tips will help to get you on the right track:

Know Your Forms

Even though tax-exempt organizations don’t file taxes, most (except religious and political nonprofits) are required to annually file what’s known as a 990. However, there are four different IRS Form 990s. Which form your organization completes depends on its size in terms of its assets, gross receipts and funding sources.

  • Form 990-N (now only filed electronically) is for nonprofits that take in less than $50,000 from public sources over the course of the year. The form’s eight questions make it quick and easy to file.
  • Your nonprofit will file Form 990EZ only if it had less than $200,000 in gross receipts from public sources or it has a total of less than $500,000 in assets.
  • If your nonprofit is a non-public tax-exempt organization, such as a private foundation that uses the resources of an endowment or other privately-funded sources, then 990-PF is the required IRS filing.
  • Finally, IRS Form 990 is the form for large, established nonprofits that had $200,000 or more in gross receipts throughout the year, or if its assets total $500,000 or more.

Maintain Good Records

Having accurate records of your nonprofit’s finances are, of course, important to have throughout the year, as well as at tax time. But they aren’t the only records necessary for filing your 990. It’s also important to maintain detailed records of the organization’s structure, its board members, salaries paid, and its departmental and programming budgets.

Depending on the organization’s make-up, you may be required to file additional schedules with your 990. In addition to having this information accessible at tax time, prospective donors will appreciate your nonprofit’s transparency if it’s also available when they’re researching organizations worthy of their contributions.

Do a Double-Take

Because your annual 990 tax filing is essentially an application to retain your organization’s tax-exempt status, submitting an incomplete or incorrectly completed form may result in penalties, rejection or denial of its nonprofit standing. That’s why having someone check your work – and especially, to verify the accuracy of your records – is so vitally important.

Trust a Professional

Although software, websites and well-meaning individuals may be available to walk you through the process of completing your nonprofit’s Form 990, consider hiring a tax professional to do the job. Working with a tax professional not only saves time, but it also may save you the headache of re-filing in the new year. Donohoo Accounting Service is prepared to answer your questions before, during and after the tax-filing season. Talk with one of our accountants or schedule an appointment today by calling 513-528-3982 or contacting us via our website. Check us out on Facebook, Twitter or LinkedIn for our latest updates!

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Do You Qualify for a Home Office Deduction?

If you worked from home pre-COVID or have landed a home office job since quarantine, you may be wondering if you qualify for a home office deduction on your taxes. Tax season will be here before we know it, so it’s not too soon to be thinking about these types of deductions.

The answer is maybe. Eligibility rules can be confusing, but here are some boxes you need to check to qualify:

You’re NOT a W-2 employee

Being a W-2 employee means you work for someone else who withholds income, Medicare taxes and Social Security from your paycheck. W-2 employees are NOT eligible for home office deductions.

If you are self-employed, a contract worker/freelancer, or are a 1099 employee, you may qualify for this deduction.

You have a designated workspace

The IRS says home office expenses can be deducted when the home office space is used exclusively for conducting business. A spare bedroom, room, or a nook in your basement would count. It doesn’t have to be a completely separate room and you don’t need to construct permanent partitions, but it does need to be a “separately identifiable space.” Consider arranging furniture to mark your office boundaries, or use a panel room divider, a bookcase or even a curtain.

Your space is used regularly and exclusively for work

In order to qualify, the space must be regularly used for business, and not a shared space for your personal tasks. That rules out your kitchen table. Spaces that are used only occasionally or incidentally for business don’t count either.

It’s your principal place of business

If you meet with patients, clients or customers outside of your home, your home office could still qualify if you use the space exclusively and regularly for invoicing, scheduling and other business-related tasks.

A freestanding structure on your property could also be a deduction if you have a studio, garage or barn that you work out of. If you use part of a large room in your home as your dedicated workspace you could deduct it if you figured out the percentage of your home this space accounts for.

You can calculate your home office deduction using the regular method or the simplified method.

The regular method considers the actual expenses of your home office — such as mortgage interest, insurance, repairs, depreciation, insurance and utilities — as a percentage of your whole house. The simplified option allows the qualified taxpayer to determine actual expenses by multiplying a prescribed rate by the square footage of the office space.

Donohoo Accounting Services knows that determining your eligibility for a home office deduction is confusing. We are here to help you understand the IRS rules, how they apply to you and which calculation method to use. With more than 20 years of experience in the business, we can help you find every deduction possible to reduce your tax burden. Give us a call today at 513-528-3982 for a free consultation.

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Prepare Now for Filing Your Personal Taxes

Getting ready to file your personal income taxes can be a daunting task of collecting information. But don’t worry, the pros at Donohoo Accounting Services are here to help! The information required to file your income taxes neatly falls into four categories: Your personal information, dependents’ information, income sources and deductions.

Your Personal Information

While most people may have this information ready at-hand for other purposes, others may have to locate it. Either way, you will need it to file your federal, state and local income taxes. Be sure to have your Social Security number or tax ID number, as well as the full name and Social Security number or tax ID number for your spouse if you are married. If you have this information in written or printed form, be sure to shred the document after your tax preparation for security purposes. Professional accountants take very good care to do this.

Dependent Information

You will need the full names of your children or dependents along with their Social Security numbers or tax ID numbers. Having either their Social Security cards or their names and numbers in written or printed form may make filing easier for your tax preparer. However, as mentioned above, be sure to shred the document after your tax preparation for identity security purposes.

Income Sources

This is where collecting income tax information starts to get tricky, but you can do this!

W-2 Forms –If you and your spouse work a regular full-time or part-time job, your employer will issue a W-2 Form that shows your earnings and tax deductions for the year. Some employers mail W-2 Forms to their employees while others provide access to an electronic document online that you can download and print. Either way, secure a paper copy of your W-2 Forms for yourself and for your spouse.

1099 Forms –Companies issue this form to contracted workers who earn more than $600 within one tax year. Additionally, you may receive a 1099 Form if you received income from non-work sources such as investments, rental income, prior years’ state and local income tax refunds, lottery or gambling winnings, unemployment compensation or retirement benefits. In addition to the 1099 Form, you may be required to provide additional documentation for income earned outside of your primary job. Your tax professional can provide details.

Deductions

Although this area of tax filing seems complicated to most people, taking deductions can reduce your tax liability and may increase the likelihood of your getting an income tax refund. More than a dozen kinds of income tax deductions can be taken, but the most popular deductions are for qualified charitable contributions, home mortgage interest, educational expenses and medical expenses. While you may receive year-end statements from the institutions that received your contributions or payments, consult with your tax professional for details about the kinds of records you need provide when claiming deductions.

To help you find the most deductions and keep your personal information secure, contact Donohoo Accounting Services at 513-528-3982 for a free consultation. We have servedand earned the trust of individuals and small businesses throughout the Greater Cincinnati area for more than 20 years.

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Get Your Money in Order for the New Year

This year is quickly coming to a close. Get ahead of the game and get your money in order for the new year. Don’t know where to begin? No worries! Here are some helpful tips.

Get Organized

Organize Concept Metal Letterpress Word in Drawer

You can file taxes after the new year, so now’s a good time to get all your ducks in a row. In January and early February, you’ll be receiving important documents in the mail including your W2, mortgage interest statement (1098), or student loan interest statement (1098-E.)Most companies, by law, have until January 31 to mail statements, so keep an eye out.

Designate a single location where you’ll keep these documents so they are easily accessible when you’re ready to file taxes. You can use a folder, drawer, box or other container. Put a large “taxes” label on it and use the container for tax-related documents only, not other mail or bills. But you may want to keepit near where you sort mail, so you can immediately put the documents in their home.

Then start gathering other items you’ll need for filing taxes, including charitable contributionand expense receipts. Qualified expenses depend on your situation, but could include expenses related to childcare, medical, job (mileage, supplies, relocation) and education. Donohoo Accounting Services can help you navigate the complicated tax structure. In addition to income tax preparation, we handle payroll tax prep, tax levies and liens, back taxes, end tax penalties, estate tax return preparationand more.

Make Year-End Charitable Contributions

Many charities do a final fundraising push at the end of the year, so you’ll probably receive solicitations asking for support. If you want to help non-profit organizations while also possibly reducing your taxable income, make your donations by December 31. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the yearwill count in that year – even if the credit card bill isn’t paid until later. You’ll want to make sure the charity is eligible. Many times, the charity will note its “501c3” status, which is IRS speak for tax-exempt. You can also use the IRS Tax Exempt Organization Search.

Take an Assessment of Where You Stand Financially

Magnifying glass showing assessment word on grey background

Now’s a good time to take a hard look at your income, debt, expenses, retirement funds, college and emergency savings. Are you on track to meet financial goals? If yes – great! If no – why are you falling short? To properly move forward into the next year, you need a realistic picture of where you are now. Put pen to paper and write down all the numbers. It helps to see everything in black and white.

Make a Financial New Year’s Resolution (Or Better Yet – Create APlan You’ll Stick With All Year)

Once you know where you stand currently, you can create a plan for the upcoming year. Perhaps you want an emergency savings fund. You never know when the furnace is going to go out, someone in your family has a medical issue or there’s a company layoff. Experts say you should have enough emergency savings to cover three to sixth months of expenses. Maybe you have all your financial bases covered but want to take an exotic vacation? Set the goal, create a plan and start saving for that overseas beach trip. Although it’s a busy holiday season, set aside time to get your money in order for the new year. Once you’re ready to file taxes, turn to Donohoo Accounting Services, locally owned and operated by Cincinnati native, Duane Donohoo.