Financial Report Requirements for a Nonprofit
There are not many laws designated to influence the way nonprofit organizations report their financials; however, the methods they use can have a profound effect on their business. The things that play the biggest part are how the company reports to the IRS and the accounting standards it uses. Most entities that provide funding to nonprofit organizations have specific accounting standards the organization is expected to follow.
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Federal Tax Reporting
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The IRS requires a large amount of financial information to be submitted each year. This includes everything from employee annual salaries to balance sheets to charitable donations. Because of the massive amount of information required, many nonprofits choose to structure their accounting practices so that they are prepared at tax time each year. This helps the company to have everything ready when the time comes, keeping it from struggling to get things together.
Standard Accounting Guidelines
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Nonprofit organizations subscribe to one of three different standards for financial reporting and accounting. Each is put forward by an organization that specializes in accounting practices or specifically for nonprofit accounting. They include the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants (AICPA) and the U.S. federal Office of Management and Budget. Recently, FASB's standard of reporting has become the most widely used.
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Revenue Reporting
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The most important aspect of nonprofit reporting is the documentation of money received from public support. There are several different types of nonprofit that are exempt from taxes. In order to maintain their exemption, a certain percentage of their revenue must come from public sources. Nonprofits must provide documentation of revenue from public contributors each year to verify that they maintain tax-exempt status. They must also document revenue from activities that move them toward the goals in their mission statements. These are called exempt-purpose activities.
Expenses
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Proper labeling of expenses is another important requirement for nonprofit organizations. All expenses must fall under one of three categories. These include operations, fundraisers and services that fall directly under their mission purpose. There have been many attempts to legally manage the allocation of nonprofit funds, but all have been overturned in court. In most cases, this has to do with the amount that can be reported for fundraising activities.
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References
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