(Thanks to the Nonprofit Law Blog for this helpful information.)

The good news is that if you are using our fund accounting software, you can rest easy knowing how simple Aplos makes sending out giving statements.  Also, if you are thinking of switching to a simpler fund accounting software, now is the time to change!  Even if you are not a current customer, I hope this list helps keep you organized and sane during this busy season.

1.  Make sure you have all donations entered with current addresses.

2.  Decide what type of letter you want to send to your donors.  Click here for a great resource.  This is a great opportunity to let your donors hear specifically how their contribution made a difference.

3.  Don’t forget to include other types of donations.

4.  See what requirements your organization must meet on the federal, state, and local level.

5.  Start reading the instructions for the Form 990 now.  You might need to research some topics or include information that takes some time to find and organize.

Those are just a few ideas to get you started.  Our desire to support you goes beyond our software so let us know if you need any help!

An accounting year is simply the 12 month period over which an organization’s accounts are calculated. Deciding what 12 month period you use depends a great deal on what makes the most sense for your organization.

Calendar year – A calendar tax year is 12 consecutive months beginning January 1 and ending December 31.

Fiscal year – A fiscal tax year is 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.

For more in depth information, take a look at the IRS Publication 538.

1. Appropriate Form Instructions. See the IRS website for these. As long and detailed as the instructions may be, they are there to help. (For those of you accustomed to putting things together without using the instructions, this is not the time to trust your instincts.)

2. Information about your organization: Name, Address, Phone Number, Officer Information, Identification Number, Year of Formation, Form of Organization.

3. Gross receipt amount. (The type of form you file will depend on this number so it is extremely important you figure this out before filling out the wrong form.) For 2009 tax years, only those organizations with gross receipts of less than $500,000 and total assets of less than $1,250,000 at the end of the tax year can use the Form 990-EZ. If the organization does not meet these requirements, it must file Form 990, unless excepted under General Instruction B.

4.  Part I – Revenue, Expenses, and Changes in Net Assets or Fund Balances

Gather the appropriate docuements that your software allows. In Aplos, the Income Statement will generate the numbers needed for Revenue and Expenses. In the Net Asset section, you will need your prior’s year’s return, if applicable.

5. Part II – Balance Sheets (Important Note: Make sure you are aware of your Total Assets in this section. If the amount is more than $1,250,000, you must fill out a 990 instead of 990-EZ)

Within Aplos, you may print out a Balance Sheet for the appropriate information. You will also need to refer to your prior year’s return if applicable.

6. Part III – Statement of Program Service Accomplishments

This section can be a little daunting but we will work through what is needed carefully. Basically, you want to consider the three largest program services your organization offered (measured by total expenses incurred). The IRS suggests the following:

Describe program service accomplishments through measurements such as clients served, days of care, number of sessions or events held, or publications issued.

Describe the activitys objective, for both this time period and the longer-term goal, if the output is intangible, such as in a research activity.

Give reasonable estimates for any statistical information if exact figures are not readily available. Indicate that this information is estimated.

Be clear, concise, and complete in the description. Avoid attaching brochures, newsletters, newspaper articles about the organization, etc.

You will need to account for specifics here and should definitely pay close attention to the 990-EZ instructions here.

7.  Part IV. List of Officers, Directors, Trustees, and Key Employees

List each person who was an officer, director, trustee, or key employee of the organization at any time during the organization’s tax year, even if they did not receive any compensation from the organization.

While officers, directors, or trustees might seem more obvious, consider your volunteers who were truly key players in your organization.  Again, refer to the instructions here so that you comply with the IRS requirements and avoid penalties.

8.  Part V – Other Information

Basically, all of the following are possiblities depending on your organization and how it’s classified.

Schedule A – http://www.irs.gov/pub/irs-pdf/f990sa.pdf (Public Charity Status and Public Support)

Form 8870 – http://www.irs.gov/pub/irs-pdf/f8870.pdf (Personal Benefit Contract – any life insurance, annuity, or endowment contract that benefits, directly or indirectly, the transferor, a member of the transferor’s family, or any other person designated by the transferor (other than an organization described in § 170(c)).

Form 4720 – http://www.irs.gov/pub/irs-pdf/i4720.pdf (Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code)

Proceed through the questions and read the instructions as needed for clarification.

9.  Part VI – Section 501(c)(3) Organizations and Section 4947(a)(1) Nonexempt Charitable Trusts Only

For this section, you will need to disclose contributions to political campaigns or candidates, lobbying activities, if your organization is a school, or compensation of employees or independent contractors if amounts are over $100,000.

10.  Paid Preparer’s Signature

If you are having someone else complete this information for you, be advised of the following.

By checking this box “Yes,” the organization is authorizing the IRS to contact the paid preparer to answer any questions that may arise during the processing of the return. The organization is also authorizing the paid preparer to:

- Give the IRS any information that is missing from the return,

- Call the IRS for information about the processing of the return, and

- Respond to certain IRS notices about math errors, offsets, and return preparation.

I would like to provide (over the next several entries) a step by step process.  My goal is to help you feel prepared to take on this somewhat daunting task so that you and I both maintain our sanity and learn a bit in the process.

Before we begin, below are some important facts to understand.

1.  In order to maintain tax-exempt status, nonprofits, charities, and other tax-exempt organizations are generally required to file Form 990 or Form 990-EZ along with Schedule A with the Internal Revenue Service each year.

2.  Here are the list of forms we will be learning about in order to help you file.  Based on how your own organization is categorized and its contribution reciepts, only some of these forms may be a required.

Contributions are the foundation upon which your organization operates and exists.  As you know, they play a tremendous role.  Managing them, stewarding them, and accounting for them within the fund accounting framework requires time and organization.  If you are like me, many questions emerge as time goes on.  Below you will find answers to some basic contribution questions.

What are some laws that I need to familiarize myself with regarding donor receipts?

Beginning in January of 2007, the IRS changed the way charitable donations receive tax credit for individuals.  Before that date, your check registers or personal notations were sufficient.  Now all donations require proof of the deductions.  A bank record for this record-keeping requirement includes bank or credit union statements, canceled checks, or credit card statements. They must show the date paid or posted, the name of the charity, and the amount of the payment.

Donors will not be allowed a tax deduction for any individual cash (or property) contribution of $250 or more without receiving a written statement from the church or nonprofit. For more specific information on types of contributions, click here.

What information is required on the documentation sent to donors?

The contribution statement must include the Church’s or Nonprofit’s name, the contributor’s name, the date(s) of the donation(s), and the amount(s).

Also included must be an explanation about whether the charity provided any goods or services to the donor for the donation. If no goods or services were provided, noting such would be important. Include a statement such as the following: “You did not receive any goods or services in connection with these contributions other than intangible religious benefits”.

An annual contribution statement ensures this requirement. Aplos creates one of these automatically for you.

When should I send my annual contribution statement?

Your donors should receive a receipt from you no later than the due date of the individuals’ tax return.

However, I encourage you to issue your receipts by January 31st each year, especially if you issue then on a yearly basis. Be considerate to your donors and give them the information they need to file this portion of the taxes in a timely fashion.

In terms of frequence, your donation receipts or statements can be issued gift-by-gift, monthly, quarterly, annually, or any other frequency. You may decide according to what best suits your organization.

More questions answered on the next post.

1.  If the thought of calculating payroll, printing checks, determing what taxes to pay your state or federal government, etc. seems overwhelming, I understand.  Maybe the stress relief gained from outsourcing a payroll is worth the cost for now.  Know that there are multiple ways to go about outsourcing and the cost varies on the type of services you choose to partake.  You may have everything run for you – payroll, paychecks, direct deposit, automatic payment to state and fed, tax filings and so on.  These types of services will cost your organization more so you must determine what best suits you.  There are many companies offering this type of service so do some window shopping first.  Once everything has run through your bank account, inputting your expenses into Aplos is a piece of cake.  More on how to enter payroll in a moment.

2.  A second option is to outsource to another company while do some of the initial work yourself.  The cost difference between the first option and this one could save your organization a great deal of money.  I began with our organization’s bank.  They offered a payroll service for a monthly fee.  I simply went through a form wizard they provided, input information based on a W-4 and our state location.  When i came across anything I was unable to figure out myself, I simply called their customer service agent.  Most of these types of bank services do require that you login to your account and click a button that begins the payroll process.  I found this to be a great option as they also happen to calculate my tax filing reports and send them via their website.  Another great feature is that they send you a reminder message notifying you when certain items need attention.

3.  Do a little bit of research and a little math.  Many places now offer payroll calculators based on withholdings and even request your state of employment.  These calculators have been incredibly helpful for our organization in determining our expenses to employ individuals.  Make sure the calculator you are using is up to date and current on tax rates.  I googled “payroll tax calculator” and did this very thing.  Super easy! (just like Aplos).  You will need to fill in the appropriate fields with the payroll perimeters for yourself or the individual.  These calculators do the work for you!  I suggest printing out the output page for reference so you can enter the amounts on your business checks.  Keep track of what you owe the fed (either monthly or quarterly), depending on how you set up your payroll.  See here for more information on federal payroll taxes.  For you state, you may be able to submit payment electronically.  Click here for a great reference to your individual state payroll information.

Our next article will cover how to enter all this information into Aplos in a simple and efficient way.  We work hard to save you time and money!

Is your tax exempt status secure?  The IRS is set to begin revoking tax exemptions on May 17th due to failure to file.  Under the federal Pension Protection Act of 2006, exempt organizations that fail to file required Form 990 annual return the Form 990-N e-postcard for three consecutive years will have their tax exemptions automatically revoked by the IRS effective on the filing due date of the third year.

The Form 990 or e-postcard must be filed annually by the 15th day of the 5th month following the end of an organization’s fiscal year.  The first round of revocations will begin May 17, 2010 (May 15 happens to fall on a Saturday this year.) If tax exemption is revoked, an organization can be subject to corporate income tax requirements, and non-profits can no longer receive tax-deductible contributions. (a fund accounting disaster) The only way to reinstate a revoked tax exemption will be to reapply to the IRS. (And for those of you who went through this process the first time, you know once was enough.) Small organizations with revenues below $25,000 are particularly susceptible, since prior to 2008 they were not required to submit annual filings to the IRS, and possibly may not have knowledge of the obligation.

Below is a simple tool that will help you determine if you need to file.

Go to http://nccsdataweb.urban.org/PubApps/statePicker.php?prog=epostcard&display=state .

- Select your state and then enter your nonprofit’s name. Check to see if there is a “File Now” Alert next to your nonprofit’s name.

- You may need to file a 990 or 990-N (e-postcard) by May 17 in order to avoid having your nonprofit’s tax-exempt status automatically revoked by the IRS. (NOTE: The “file now” link will take you directly to the E-postcard electronic filing site. Your filing requirements may differ.

Keep in mind that religious organizations are still exempt from Form 990 and related IRS annual filings. (See http://www.irs.gov/charities/article/0,,id=152729,00.html for common filing exceptions.)  Also, Form 990-N e-postcard applies to organizations whose gross receipts are below $25,000.  If your organization’s gross receipts are normally in excess of $25,000, you must file a Form 990 and not the e-postcard. (See http://www.irs.gov/charities/article/0,,id=169250,00.html)  And one more thing to keep in mind – If your organization is categorized as part of a group exemption, you might find it listed even though the parent organization may be including the financial information on its group return. Be sure to check with the parent organization or your accountant to ensure annual filings are being made. If your group exemption filings are up to date, you do NOT have to file separately.

Once your organization’s exemption status is revoked you will have to reapply for tax exemption as well as pay all the fees associated.

Two rules have caused a great deal of confusion for minister’s coverage of Social Security. First, “ministers always are self-employed for Social Security with respect to their ministerial services. This means they pay the self-employment tax, not “Social Security” and “Medicare” taxes. Second, under very limited circumstances, ministers can exempt themselves from self-employment taxes with respect to services they perform in the exercise of ministry by filing a timely Form 4361 with the IRS.”  You may click on the link below for comprehensive information on this subject and to determine eligibility for exemption.  The article is written by Richard Hammer, an attorney, CPA, and author specializing in legal and tax issues for churches and clergy.

Exemption of Ministers from Social Security Coverage