A non-profit CPA can help the entity to set up a transparent accounting system. Many non-profit entities volunteer this complex task to unprofessional staff that may lead to penalties and often revocation of the tax-exempt status.
Let us discuss what is the role of non-profit CPA and the services on offer.
What is a Non-Profit CPA?
A non-profit CPA is a certified accountant who specializes in CPA services for not-for-profit entities.
A non-profit or not-for-profit entity works for a social or welfare cause. Unlike for-profit entities, their objective is not the wealth maximization of the shareholders.
From top to bottom, a non-profit entity works differently from a commercial or for-profit entity. Thus, it requires a CPA who can advise and manage its accounting services professionally.
A non-profit CPA can help you understand the accounting, financial, and compliance requirements. Although non-profit entities are tax-exempted, they need to report their financials to the IRS on form 990s.
Services Offered by a Non-Profit CPA
Non-profit CPAs offer a wide range of accounting and consultancy services to these organizations. Some of these services may seem similar to those of for-profit entities, however, many of these services are unique only to not-for-profit organizations.
The first step is to register your non-profit entity with the IRS. The IRS provides a detailed outline to follow the process.
The IRS may take up to 180 days to decide on the status of your non-profit entity. So, the first step is to file the form 1023 to get a tax-exempted status from the IRS.
If your entity’s annual revenue is less than $50,000, you should file Form 1023-EZ.
Choosing the Right Entity Type
The IRS will review your form 1023 or 1023-EZ. It must contain all information relevant to your entity’s objectives, operations, and governance structure. The initial listing for a non-profit entity is under 501(c) with tax-exempt status.
Then, the IRS has a list of around 30 different types of non-profit entities.
The most common 501(c) types are:
- 501(c)-3 for educational, charities, welfare, etc.
- 501(c)-4 employee societies, welfare communities, etc.
- 501(d) religious and apostolic associations
- 501(e) cooperative hospitals
- 501(k) childcare organizations
Setting Up Accounting System for a Non-Profit Entity
A non-profit CPA can help you set up the accounting system for your non-commercial entity.
Your organization will need to uphold the same accounting standards to ensure transparency. Also, you’ll need to keep comprehensive bookkeeping records for detailed financial reporting.
Working with a professional CPA will allow you to choose between outsourcing and in-house servicing. A certified professional can choose the right option that fits the objectives of your non-profit entity.
Employee Training and Consultation
Choose a non-profit CPA to help your organization with employee training regarding accounting, financial, and compliance requirements.
Although your entity does not require filing for taxes, it still needs to file Form 990. Therefore, following the due procedures and laws is of utmost importance for a non-profit entity.
All stakeholders of a not-for-profit entity are interested in tracking funding for the organization. In particular, donors are keen to observe where their money goes.
In this sense, donors act like shareholders of a commercial entity. They want to ensure their provided sources are utilized properly.
A non-profit CPA will help you set up a transparent financial reporting system that will satisfy your donors and regulators at the same time.
Preparation of Financial Statements
A non-profit entity must also prepare financial statements. However, the structure and reporting requirements are a bit different.
For example, a non-profit entity would include a statement of activities for its revenue and expenses. The use of revenue from donors can be restrictive, unrestrictive, or temporarily restrictive.
Similarly, a not-for-profit entity will report its expenses by nature and function. It is to ensure further transparency of the funds received from donors.
Notes to the Financial Statements
Non-profit entities need to write financial statement notes more often than other entities. These notes include explanations about the financials, governance, and compliance policies.
Common notes to financial statements explain investments, outstanding debts, funding inflow and outflow, asset depreciation, pledges made by donors, and so on.
Filing Form 990
Even when your non-profit entity is tax-exempted, you are not exempted from filing a tax return. Unlike other entities, you’ll need to file form 990.
Depending on the type of non-profit entity you registered, you may need a different version of Form 990 like Form 990-PF, 990-EZ, or 990-N.
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