A common question to those new to the world of nonprofit organizations is how much accounting and bookkeeping is really necessary for charities, and churches. My answer? It’s more vital than if you were starting your own business. It’s absolutely critical for executives and directors to have at least a basic understanding and skill in financial management, because expecting others to manage it for you isn’t a good option – it’s asking for trouble.
Having the basic understanding of bookkeeping and financial management ensures that the books are always reliable, and being able to generate financial reports and analyze those statements, will give you a deeper understanding of how you’re doing on many different levels.
The financial management you’re going to be getting into with a nonprofit organization is basically like any other companies. Preparations for a third party audit, basic methods of internal controls, a firm grasp of a solid accounting system, budget cycles and annual filings… this is all indispensable to your board of directors, and audit committee, not to mention the overall financial well-being of the organization.
Because each organization is different in the financial issues they fast and the fund-raising methods they have, every organization will be treating their reporting and statement creation a little bit differently. Different situations calls for different analysis of different elements – not being able to create the reports needed because of a lack of accounting structure can be very bad. These reports show if the organization itself is financially stable, what financial obligations it’s facing, how much it’s spending on staff, as well as recent financial changes the organization has experienced.
What sort of reports would be needed by a nonprofit organization?
What’s Common Monthly:
- Balance sheet, or statement of position
- Income verses expenses sheet, showing actual, up to date information
- Strong report showing tax and financial highlights, including grants received and short term loans. This report is essential for managing cash flow
What’s Common Quarterly:
- Detailed fund-raising reports. These should include status reports of foundation proposals and actual vs. projection regarding donations
- Cash flow projection
- Fee for service report, which details fee-paying clients and revenue
- Payroll tax report
What’s Common Annually:
- Federal forms, which include state reports, schedule A, and 990
- Statement of activities
- Statement of position
- Income statement for each and every program
- Draft of financial statements for the year
- Audited financial statements for the entire organization
- Management letter from the auditor
The commonly used term, ‘tax credit’, can refer to two different concepts. One, which is just the recognition of a partially made payment towards the taxes due. The second is a benefit paid by the state, to workers, through the tax system which actually increases the net income, not reduce it.
About Taxes Already Paid
In Canada, Australia, the United Kingdom and the United States, a tax credit is their recognition of a partial payment that has already been made of taxes due. A similar concept is also present in the French tax system. This normally happens when the ‘standard’ taxes have been deducted (Like out of your paycheck, ‘Withholding tax’), but you are still subject to more taxation and a different, often higher, rate.
In the UK, tax credit actually refers to taxes that are treated as deducted at the source, but haven’t actually been paid. The “R&D tax credit” (Research and Development) is a payable tach relief scheme that refers to the cash surrendered loss on eligible research and development work. The credit is worth up to 24.5% of the spending, and was introduced in 2000, with an extension made so it’s available to large companies in 2002. It’s still unclear, though, whether this has lead to an increase in research and development in the UK. Experts don’t expect to see clear results for at least 10 years.
What About the Other Tax Credit?
A tax credit is also a coupon that a company uses to lower the actual amount of state income taxes it owes, and has to pay. Kind of like using a coupon at the grocery store. Let’s say Company Alpha owes $1,000 in taxes towards the state. The more credits it has, the less it has to pay – so the larger it’s bottom line is.
Tax credits aren’t always useful. Let’s say Company Beta has a huge warehouse, but it’s used solely for storage and distribution. It has a lot of business dealings going on there, and pays taxes, but it doesn’t actually sell anything on the premises. Without that sale, it doesn’t generate taxable income, and shouldn’t have any state income tax liability. Why would Company Beta need a compute to reduce taxes that it doesn’t even owe?
In some situations, tax credits can be very useful – but clearly, in others, a tax credit would do a company no good at all!
Everyone knows that they have to pay taxes – but some people don’t even know what a tax is. Collected by the state and the federal government, taxes are required charges that are collected against every working adult. In some form or another, taxes have always been charged against people – even in family, taxes were collected in the form of gold, produce, or even labor. They’re a way that we give back to the community we live in.
In the past, taxes have been used to do things like finance wars – but today mostly our tax money goes towards things like maintaining the public education system, the upkeep of our laws, build new infrastructure, maintain and build new roads, our defense, and so much more.
In 1913 the Federal Income Tax was instituted by President Woodrow Wilson. Between 1% and 7% of a person’s income is deducted for this tax, depending on various factors. And since then, more taxes have been added in order to keep our government running. After World War I, the American Tax Code has become four times larger.
In America, we have a system that lets the government know how much you’ve earned, and if you’ve paid the correct amount of taxes. The tax returns run by the Internal Revenue Service (IRS), and it’s something that everyone who makes over a certain amount each year has to go through.
Basically, what happens is you fill out a single form that everyone has to complete, and then supplementary forms. There is also a instruction booklet that can make the process easier, provided by the IRS. You give them information regarding your expenses, and income, for that year, and they calculate the taxes you have to pay.
Even if you’re self employed, you are expected to file a tax return. If you’re receiving any sort of taxable income, you must file – very few people over the age of 18 are exempt from filing.
Many people get penalized every year for failing to file their taxes, or for filing incorrectly. Even if you do not receive a tax return from the IRS, you should file your taxes to ensure that everything is in order.
Your tax returns need to be send by April 15 after the end of the tax year.
Tax returns aren’t something that can be forgotten about, or put off – and taxes certainly aren’t something you can get out of paying!
Ever notice that annoying little deduction out of your paycheck? There should be more then one, but I’m talking about the federal income tax specifically. Taken out of every employee wage, including bonuses and commissions (Even tips for waitresses!), it’s a way of life for the working US citizen.
The employer must provide a W-4, because this is how you determine how much is withheld from each paycheck you receive. You need to also make sure you let your employer know if you’re married or single, and the number of exemptions you’ll be claiming. This changes how much you have to pay in taxes.
From the IRS you can receive Publication 919, or ‘Getting the Right Amount of Tax Withheld’. As an employee, you have the right to request additional funds to be withheld. This publication can help you figure out what amount of tax withholding is right for you, your family, and your employer.
There are a lot of different factors that play into the amount of federal income tax is withheld each year, including if you have then one job or if you’re married. This is why it’s vital to let your employer know all of these things at the beginning of your employment, and alert them as soon as it changes. Sometimes, depending on the number of exemptions, filing status, and earned income levels, employees will qualify for Advance EIC Payments. This is basically a refund of federal income tax, and they’re to be made each pay period, if it’s requested.
When an employee contributes to a 401(k), or another, similar program, it will also affect how much is withheld. Most of the time, contributions to a program like this benefit the employee at the end of the tax year, because these contributions provide a tax break as well as reduce what’s due to the federal government.
Child tax credits, education credits, nonwage income – these all affect your liability as well. Don’t think that smudging information on your employer’s sheets doesn’t make a difference, because it does.
At the end of the tax year, you should be given a W-2. Your W-2 basically contains everything you were paid, and every deduction that was taken from your pay since the beginning of the last tax year. You are required to receive a W-2 by January 31st of the next tax year – if you haven’t, you need to contact your employer.
Bottom line? As an employee, you need to go over your filing status, and your W-4, to make sure everything is correct, and the right amount of taxes are being withheld. It’s vital, because discovering a mistake after filing taxes can result in fee’s, penalties, and more.
April 15th is coming around, and if you’re feeling the pressure to get your information organized and your taxes filed, you’re not alone. How would you like a tax extension? What about having until October 15th?
Filing for an extension on your taxes gives you six months to prepare better in order to file properly. But wait, don’t you need some sort of crazy reason, like a plane landed on your house, in order to get that extension?
Nope! In fact, the IRS doesn’t even ask you for the reason you need an extension. As long as you provide accurate information when you file your extension request, it’s granted automatically.
So, how do you go about filing for such an extension? Well, the absolute easiest way to do so is to file for an extension online. Using an IRS approved provider, like FileLater.com, you can complete the entire process of filing for an extension in 10 minutes or less, depending on how long it takes you to get the information needed.
Yeah, it’s that simple. The best part is that FileLater.com will send you an email the next day letting you know if you’ve been approved for your extension or not, and if you haven’t, they’ll help you file again (With no additional fee), and help check to make sure everything you’ve filed is accurate.
FileLater.com even makes the hardest part of filing for an extension a little easier. Their online calculator helps you figure out if you’re going to be owed a tax return this tax year, or if you’re going to owe the government money. This lets you figure out if you should send the IRS money or not (If you do determine you’ll owe additional taxes, you can send in a check or pay directly from your bank as part of your e-file).
Don’t forget that filing for an extension on your taxes doesn’t mean that you have an extension to pay the taxes due. If you do owe additional taxes to the government, and don’t pay them when you file your extension, you’re going to be subjected additional penalties and interest on that amount! Many people ‘forget’ this fact, or don’t realize it, and end up making a huge mess out of their taxes.
So, do yourself a favor. If you need the time, take a few minutes out of today and file for an extension. You have until midnight on April 15th to file, and if you’re denied, until April 20th to correct any errors that may have happened and reapply. Make your life a bit easier, and file!
Wait, don’t get too excited. It’s simplified, not simple. Form 7004 isn’t the only type of extension form there is – tax payment deferral requires more documentation, as well as form 1138. And, when you’re dealing with employee retirement plan reporting, Form 5558 is needed for up to 2.5 months worth of an extension.
Depending on the type of business, a successfully filed 7004 will give you between 5 and 6 months of extension time. For the most part, trusts, estates, and partnerships only receive 5 months. Most other businesses receive a full 6 months.
Yes, when you’re just filing for an extension for the tax documentation, you only need to fill out and file Form 7004. You still need to pay the taxes due at the time of filing for the extension, unless you choose to file IRS form 1138 as well.
The Basic Steps of Filing an Extension
Filing your taxes as a business requires a lot of gathering, a lot of reports, an uncomfortable amount of information regarding your financial records, and a whole host of other tax deductible items. Sometimes there just isn’t a choice for a business but to file for an extension. Here is a quick step by step to file for an extension.
Note: If you find yourself behind, or confused about what you need to file, acquiring an accountant or tax specialist may be the best way to go. There’s no shame in not knowing where to begin, and really, what can you lose by getting some help?
1. Make sure you have all of your tax documents – financial statements, retirement plan contributions, and withholdings. Put all of this in a form, or a specific computer file, for later.
2. Identify the business structure. LLC, C-Corporation, etc.
3. The hard part; calculate up the probable tax due to the IRS for that tax year. This may require the help of an expert, if you’re not sure how to go about it.
4. Get Form 7004 and fill it out, using all of the information you have. No reason has to be given as to why you’re filing for an extension.
5. Submit form 7004 to the appropriate IRS center, along with payment – or deferral forms.
As said before, there are a lot of things to sort through when you file taxes, and there’s nothing wrong with having to file for an extension if you need to time to gather information. It happens – but make sure you don’t just let it slip by!
So, April 15th is closing in fast… and you haven’t, or can’t, complete your tax forms. It happens to some of us, and it’s understandable. Filing for a tax extension can be your answer – but don’t think it gets you out of paying. The extension does only cover the paperwork. You still need to pay what you owe by April 15th!
Here’s a detailed step-by-step instruction on how to file for your tax extension and ensure that you’ve got yourself covered.
1. You need to know if you’re going to owe more taxes this year, so figure that out first. You can file the extension, but without paying the taxes owed, it’s going to do you no good!
2. Pick up a copy of Form 4868. You can usually print one off online, or pick it up at your local library.
3. Fill in your name and SSN on the form. If you’re filing jointly, put their information on there as well!
4. Line 4 is where your calculated tax due from your taxable income goes. The IRS doesn’t appreciate a frivolous estimate, so make sure you really do your homework with this one.
5. On line 5, you’re going to have to figure out how much federal tax you had withheld from your paychecks, and put that amount there, along with any other amount you paid in estimated taxes for the year.
6. Pull out a piece of paper and subtract line 5 from line 4. If you should be getting a refund, just put ‘0’ on line. If you’re not, put what tax is due to the IRS on line 6 and 9.
7. On line 10, you need to put how much of what you owe them you’re actually sending them. While I, and they, understand you may not be able to pay 100% of it right now, you need to send as much as possible.
8. Place the bottom of the page (There should be an area to indicate where to separate) and mail it to the IRS center where you would normally send in your tax return. With this, make sure to enclose a check or money order to the U.S. Treasury for what you’re paying them! Put your SSN, the tax year, and the words ‘Form 4868’ on the money order or check as well.
9. Mail it! The step some people forget is to mail the actual letter. Make sure it’s post marked April 15th or earlier, because you’re going to have some problems if it’s not.
A Second Extension?
Sometimes April 15th closes in on you, and you can’t get your tax returns together. What you can do in this situation is file a request for an extension to file your taxes. Confusing, right? It’s the government – they like it that way.
The IRS isn’t going to automatically hand you this, though. You need to show the following in order to achieve a second extension:
A. The reason for the extension
B. The tax year you’re dealing with
C. The tax return that you need an extension on
D. The length of time you need for this extension
E. If another extension has already been granted for that tax year.
If you provide the information, the IRS should grant you the extension of time to file – usually it’s a two month period.
Grab form 2688, which the form needed to make it all happen.
