Rushabh Shah

Meru Accounting Notes on Taxation for Non Profits in United States Significant aspects of taxation for Non profits : Approval of IRS: The income of Non profit entity is exempt from Federal Income tax if it is approved by IRS. Taxability of Donation received: Donation received by Non Profit is exempt and no tax is payable on same. Employment Tax: Non Profits are required to pay employment tax even when they are exempt under federal income tax. Sales tax and State level taxes: Non Profits are required to pay sales tax and other taxes based on state level requirements. Accounting for donations received: Unrestricted contribution revenues: If the purpose of contribution received is not stated by donor, it would go to unrestricted contribution revenues. Temporarily restricted net assets: If the use of the donation is specifically stated it would go under temporarily restricted net assets Permanently restricted net assets: These donations are such which can never be used in perpuity at any point of time. Accounting for Expenses: Program Expenses : Expenses incurred for specific its programs are classified as Program Expenses. Support Expenses : Expenses incurred for supporting of program are classified as support expenses. They can be related to fundraising activities or general expenses. Chart of accounts needs to be prepared in line with the reporting requirements of the statue and the management reporting required by trustees. Budgets for Non Profits: Budgeting for non profits is divided into many aspects like Grants, budgeting for program expenses, expenses by functions etc.