Nonprofits

Group of diverse people placing their hands together in the center, symbolizing teamwork and unity and assistance for non-profit organization

Nonprofits provide essential services to specific groups of people within the community. They generally rely on support or revenue from membership dues, charitable contributions, fundraising events, public and private grants, and investment income. We serve a variety of nonprofit organizations in our communities, including civic organizations, fraternities and sororities, health and welfare organizations, educational organizations, philanthropic foundations, and other vital nonprofits. 

Cooke, Lavender, Massey & Company, P.C., provides discounted tax preparation, accounting services, and attestation engagements to nonprofit organizations and charities in Blacksburg, Christiansburg, Radford, the New River Valley, and the surrounding region. 

We offer a variety of services, including:

  • Accounting

  • Bookkeeping

  • Payroll Services

  • Income Tax Preparation

  • Audits and Reviews

  • Compilations

Unique Accounting and Tax Challenges Faced by Nonprofits

Nonprofits face several unique accounting and tax preparation challenges that for-profit businesses do not need to navigate. 

  • Unlike for-profit businesses, nonprofits must accurately track and record charitable donations, member dues, grants, and all other types of income unique to nonprofits. It is essential to provide appropriate acknowledgments to donors with the correct language. 

    Accounting for pledges can also be a complicated but it is a necessary process for any nonprofit that uses monthly giving programs and other fundraising strategies. It can get very complicated to accurately account for money that is pledged but not yet donated. We can help navigate this complicated area of nonprofit accounting.

  • Restricted donations are charitable donations with specific conditions about how or when the money can be used. By accepting a restricted gift, a nonprofit has essentially entered into a contract with the donor or grantor. 

    There are several ways charitable donations can be restricted. Perhaps the donor wants the organization to use the money for a specific project, or the donor would like the funds to be used after a specific date or event. Restricted funds reassure donors that their donation will be used in the way they intend. 

    The owner can request the tip credit using IRS Form 8846. Owners who are eligible for the tip credit can save hundreds or thousands of dollars on their taxes each year. 

    To qualify, the restaurant's employees must keep an accurate record of their daily tips, and the employer must keep an exact annual total. Our accountants can help restaurant owners keep accurate records of tips and assist with the calculation of the tip credit. 

    Broadly, there are two accounting methods that small businesses can utilize. An accounting method determines the timing of reporting of income and expenses. The accrual method of accounting measures earnings more accurately than the cash method since it records income and expenses in the period to which they apply, instead of simply reflecting cash flow. This method of accounting is more complicated than the cash basis of accounting but it is required in certain circumstances. The cash basis of accounting is used by most small businesses and generally reports income when it is constructively received and expenses when they are paid.

  • Endowments and investments have many specific and complicated reporting requirements. Many nonprofits do not have the resources to handle the complicated accounting and tax preparation internally. Accounting for endowments is often further complicated by the fact that most endowments are funded by restricted donations.

    Our accountants provide valuable guidance related to the accounting of, and the reporting for, endowments and investments. 

Frequently Asked Questions

  • Nonprofits must send an acknowledgment letter to each of their donors, either annually or throughout the year for donations that exceed $250. The written acknowledgment required to substantiate a charitable contribution of $250 or more must contain specific information. Acknowledgment letters must also include a notice that, if goods or services were exchanged, the donor can either provide a list or choose not to report the value of those goods or services. For example, if a donor gives $1,000 to a charitable organization for a fundraising event at which they received a meal and a gift bag worth $150, the donor really only gave $850.

  • Many people do not have a full understanding of an audit and its purpose. Audits are most often required by a grantor agency, a state agency, the federal government, or a donor. Some nonprofits’ board of directors require financial statement audits at regular intervals (often annually or every three to five years). We can help your nonprofit determine if an audit is necessary or if a lower level of service can accomplish your nonprofit’s goals. Our first step is to confirm that the organization does indeed need an audit. Then we identify the type of audit that will satisfy the requirement. Then our team can complete the review and report our findings to the individuals or group requesting the audit.

    For any deduction, it’s essential to have a record of the expense or reimbursement. Even though it’s inconvenient, the best practice is to go through the process of formally reimbursing yourself for any deductible expenses. For example, if you would like to deduct automobile mileage, you must keep a log and write a check to reimburse yourself for those miles so that everything is documented accurately for tax and accounting purposes.

  • There are different types of Form 990 that various nonprofits are required to file. If an organization’s gross receipts are less than $50,000, the Organization can file the simple 990-N. For organizations whose gross receipts are less than $200,000 and their total assets are less than $500,000, they may submit Form 990-EZ or Form 990. Organizations whose gross receipts and total assets exceed $200,000 and $500,000 respectively must file Form 990. Private foundations must file Form 990-PF regardless of their financial status. These forms are due four and one-half months after the Organization’s fiscal year ends.

Common Mistakes

  • Stylized orange and yellow coin with a dollar sign in the center.

    Not reporting unrelated business income

    Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. For most organizations, the IRS defines unrelated business income as income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An Exempt organizations gross income from an unrelated business that is equal to or exceeds $1,000 must file Form 990-T. Some common scenarios include income derived from the rental of real property (if the organization has a mortgage note), selling advertising in a brochure, or having advertising on the organization’s website. If the organization has these types of income, it is essential to report this unrelated business income and pay the appropriate taxes, as necessary. 

  • Icon of a purple document with a folded corner, displaying three horizontal lines, set against a yellow circular background.

    Not filing Form 990 on time

    Nonprofits can avoid significant penalties by submitting the correct Form 990 by the due date. Organizations that fail to file the annual Form 990 for three consecutive years may have their nonprofit status automatically revoked by the IRS.