Not-for-profit accounting and taxation

Transcription

1 Not-for-profit accounting and taxation Presented by: Denise McKnight, CPA Partner, Friedman LLP

2 What is a Not-for-profit (NFP) organization? A NFP is a corporation or an association that conducts business for the benefit of the general public without shareholders and without profit motive. A NFP is permitted to generate surplus revenues, they must be retained by the organization for its selfpreservation and/or expansion.

3 Accounting responsibilities Management and the organization s board of directors has a fiduciary responsibility to report accurate financial information and to protect the assets of the organization. Best practices begin with ensuring that the organization have a system to accurately track the assets, liabilities, revenues and expenses of the organization for each fiscal year.

4 Internal controls What are internal controls? They are processes designed to help the organization accomplish specific goals or objectives. They are an integral part of any organization s financial and business policies and procedures. Internal controls play an important role in preventing and detecting fraud.

5 Internal controls (continued) High level control objectives relate to the reliability of financial reporting, timely feedback on the achievement of operational goals, and compliance with laws and regulations. Transactional level controls relate to actions taken to achieve a specific objective.

6 Internal controls in a small organization The most important internal control is segregation of duties. Sometimes this is not possible in a small organization, so compensating controls can be implemented.

7 Practical best practices Good checks and balances Monthly bank reconciliation prepared and reviewed Annual budgets Limit access to accounts, check signers Make it a process to annually review check signers for each account

8 Financial Reporting Organizations report their financial information in accordance with one of the following basis of accounting: Cash basis income is reported when the cash is received and expenses are recorded when the cash is expended. Accrual basis income is reported when earned and expenses are recorded when the goods or services are received.

9 Financial reports Organizations can retain an independent CPA to perform the following financial reports: Compilation Review Audit

10 Not-for-profit taxation Most NFPs are exempt from taxation. They must file with the Internal Revenue Service (IRS) to gain this exemption status. NFPs gain exemption under IRS code based on the type of entity. For example: Public charities are commonly 501(c)(3) exempt Social and recreational clubs are commonly 501(c)(7) exempt

11 Not-for-profit taxation (continued) NFPs are required to file a Form 990 annually with the IRS. This tax return is an informational return and is considered a public document. All 990s are available at NFPs can be subject to income tax on income generated outside their exempt mission. This is called unrelated business income tax.

12 Not-for-profit taxation (continued) Additional requirements: If an organization receives a donation of $250 or greater, they must acknowledge this contribution in writing to the donor. Charitable organizations are required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.

13 Not-for-profit taxation (continued) Reminder on the basics: Payroll tax filings Form 1099 annual filings Keep your tax exempt status up to date!

14 Questions Contact information - Denise McKnight, CPA dmcknight@friedmanllp.com