Non-profits are an integral part of our society, but they often face a lot of misinformation when it comes to tax obligations. With so many misconceptions surrounding non-profit taxes and compliance, it’s easy to fall prey to common myths and misunderstandings.

To help answer questions and set the record straight, here are some of the top tax myths surrounding non-profit organizations in the US:

  • Non-profit organizations do not pay taxes

    Many people believe that non-profit organizations are entirely exempt from paying taxes. While non-profit organizations are exempt from federal income taxes if they meet the IRS tax exemption requirements, they may still be paying other types of taxes. For example, while they don’t pay income tax, they may have to pay taxes on things such as employee payroll. The taxes paid on these types of expenses can be significant and can make non-profits eligible for incentives.

    Many people believe that non-profit organizations are entirely exempt from paying taxes. While non-profit organizations are exempt from federal income taxes if they meet the IRS tax exemption requirements, they may still be paying other types of taxes. For example, while they don’t pay income tax, they may have to pay taxes on things such as employee payroll. The taxes paid on these types of expenses can be significant and can make non-profits eligible for incentives.

  • Non-profits aren’t eligible for tax incentives

    Another common myth is that non-profit organizations don’t qualify for valuable government tax incentives and credits. The truth is that because non-profits pay certain taxes, they can be eligible for certain tax-based programs. The largest program many non-profits overlook is the Employee Retention Credit (ERC). Because non-profits pay payroll tax, they can be eligible for the ERC. The credit can be worth up to six figures of cash refunds that the organization can use as they see fit. Non-profit organizations can qualify for the Employee Retention Credit (ERC) if they have experienced a significant decline in operating revenue or have had to make operational changes.

    Qualifying through operational changes is the most common pathway, such as the inability to host fundraising events, program reduction, or capacity limitations. By claiming the ERC, non-profits can use the cash refunds to support their operations and further their mission, providing much-needed support during this difficult time. So don’t miss out on this opportunity – take advantage of the Employee Retention Credit today!

  • Non-profit organizations that do not make a profit are not required to file tax returns

    All non-profit organizations are required to file annual tax returns, regardless of their net income or lack thereof. The IRS uses these returns to determine whether the organization meets the requirements for tax-exempt status. Failure to file annual tax returns can result in penalties and the loss of tax-exempt status. Non-profit organizations must apply to the IRS for tax-exempt status. The IRS has specific requirements that organizations must meet to be considered tax-exempt. The most common type of tax-exempt status for non-profit organizations is 501(c)(3). It is important to note that even if an organization has tax-exempt status, it may still be required to pay certain taxes.

Experience Matters

There are several myths surrounding tax laws and non-profit organizations. Understanding the rules and regulations that apply to your organization is essential, as failing to comply can have serious consequences. Remember that non-profit organizations must file tax returns, meet specific requirements for tax-exempt status, and may be eligible for tax credits if they meet the criteria. If you have any questions about the tax laws that apply to your organization, consult a tax professional or the IRS. alliantgroup is committed to helping non-profit organizations leverage all credits and incentives available to them, and our process is tailored to non-profit organizations, differentiating them from businesses. You can learn more about our services for non-profits and how we can help your organization.