Top Tax Tips for Nonprofits in 2025
Navigating tax compliance is a crucial responsibility for nonprofit organizations. To ensure a smooth tax season and maintain your organization’s good standing, follow these key tax tips for 2025:
Inform Your Tax Preparer of Any Changes
Nonprofits evolve, and significant changes from the prior year can impact tax filings. If your organization has introduced a new revenue stream, opened a foreign office, invested in limited partnerships, earned advertising-income, received a major grant, or undergone structural changes, notify your tax preparer early. These changes may affect your Form 990 or unrelated business income tax (UBIT) obligations.
Start Gathering Form 990 Information Now
One of the most complex parts of the 990 is compensation reporting. With W-2s and 1099s recently filed, now is the perfect time to start compiling the necessary information for Part VII of the 990. Proper documentation is essential to ensure compliance and avoid errors. Compensation reporting is critical to nonprofit tax filings, so to stay organized, focus on gathering:
- W-2s and 1099s for reporting compensation
- Ensure executive salaries, benefits, and independent contractor payments are accurately documented
Once you’ve closed your books for the year, you can also begin gathering information on:
- Schedule B: Contributions received
- Schedule F: Foreign activity
- Schedule I: Grants provided to organizations or individuals
Proactively gathering this data can help prevent last-minute scrambles and filing errors.
Plan for the Upcoming Year
A proactive approach to tax planning is essential for nonprofit compliance. Consider what tax filings your organization must complete in the coming year, including Form 990, Form 990-T (if applicable), and state-specific reports. Additionally, determine whether your organization will require an audit based on state charitable registrations, funding thresholds, or grant stipulations. If you will have an audit performed, be sure to schedule it in plenty of time to meet the applicable deadlines. Early planning can prevent surprises and ensure compliance with all regulatory requirements.
Review and Store Prior Year Filings
Proper record-keeping is a key aspect of nonprofit tax management. Review prior-year filings to confirm they were submitted correctly, and ensure you have proof of filing and mailing. Securely storing these records will help with future tax preparation and provide documentation in case of an audit or compliance review. Some items, such as your exemption determination letter from the IRS, should be maintained permanently. (If you don’t have a copy of your most recent exemption letter, we recommend obtaining a copy from the IRS, either online using the Tax Exempt Organization Search (TEOS) or by completing Form 4506-B, Request for a Copy of Exempt Organization IRS Application or Letter.) Other items, such as accounting data, previously filed returns, and documentation to support business and expense items on a Form 990-T, should be maintained for at least seven years from the date of filing.
By staying proactive and organized, nonprofits can streamline their tax processes, avoid compliance issues, and focus on mission-driven work. Start implementing these best practices today to set your organization up for success in 2025 and beyond.
Article Prepared By:
Erin Gray Cranmer| Senior Manager
