Nonprofits, like any other business, need to deal with taxes. Even though a nonprofit may be tax-exempt, it still has to file and sometimes, even pay taxes. Let's not forget that tax compliance can be required at local, country, state and federal levels, so nonprofits cannot just ignore this issue. Below are some important tax considerations:

1- File the 990-N online

The 990-N is an Internet-based filing available to small organizations, requesting basic information, such as name and address. Nonprofits may lose their tax-exempt status after the organization fails to file the 990-N for three years. Note that the Internet system can be used only for the current year, therefore if you're late, you cannot file the 990-N, and must file the 990 or the 990-EZ in paper-form. The eligibility for the online form varies each year, so check with the IRS website often to see if your organization can use the 990-N online.

2- Sales/Use taxes

Many vendors don't charge nonprofits sales taxes because they are under the wrong assumption that these organizations don't pay sales/use taxes on purchases. This may seem like a good deal at first, but can create problems later if the vendor is audited and found that it should have charged taxes. The audit may spread to the nonprofit, and overall, it's not a pretty picture. This situation happens often because some states indeed don't charge sales taxes on nonprofit purchases, but this is not the case with every state. California, for example, requires most nonprofits to pay sales/use taxes on many types of purchases.

3- Payroll taxes

Nonprofits must follow the laws like any other business. Failure to pay proper taxes can create a huge burden on the nonprofit, which may be hit with large penalties and interest. The Treasury Inspector General for Tax Administration issued a report in 2014 regarding nonprofit delinquency and noncompliance with payroll taxes, so this seems to be a common issue within this sector. Be sure that your payroll department and/or processing service is aware of all payroll obligations, including proper payments for state and federal taxes.

4- Unrelated Business Income Tax

The idea here is to prevent nonprofits to compete unfairly with other firms, providing similar goods and services. Proceeds classified as unrelated are carried on regularly and are substantially independent to the exempt goal of the organization. Nonprofits file and pay this tax using form 990-T. However, note that the IRS provides many exceptions to this rule, giving nonprofits breaks on what is taxable. Income from volunteer work is one such exception.

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