What might be less obvious is board meeting minutes, which are the notes of what was discussed and decided in any board meeting. First, the IRS will want details concerning this information on your Form 990, specifically for larger donors. Nonprofits that are required to file Form 990 or 990-EZ are required to list on Schedule B all donors who gave $5,000 or more, assuming those https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ donors are individuals, companies, or non-public charity nonprofits. For some nonprofits, the threshold for listing larger donors is 2% or greater of donated revenue. Sometimes the records generated by a business or nonprofit organization can be overwhelming!
Types of Financial Records Required by Nonprofits
Also, books and records of exempt organizations must be available for inspection by the IRS. If the IRS examines an organization’s returns, the organization may be asked to explain items reported. An effective record keeping system enables an organization to monitor the progress of programs and aid in the preparation of financial statements and returns. Records can show whether programs are improving, which programs are successful, and what changes an organization may need to make.
Record keeping for nonprofits, penalties and loss of tax-exemption status
As a best practice, organizations should have a Document Retention Policy that describes what records should be kept on file and for how long. The retention period for financial records varies depending on the type of document and legal requirements. Generally, nonprofits should retain financial records for at least 7 years to comply with IRS regulations. However, specific record retention requirements may vary by state and local laws. Nonprofits should be aware of legal requirements regarding how long different types of documents must be kept.
Documents to Retain for 4 Years
There’s a well-worn cliché that says, “If it’s not in writing, it didn’t happen”. But, unless you are the uber-organized type who just instinctively writes everything down, documentation may not be your strong suit. In this article, I want to talk about four critical categories of recordkeeping and how you can make sure you have your bases covered. Document retention policies are one of several good governance policies that the IRS highlights on the Form 990 by asking whether the filing nonprofit has adopted a written record retention policy. You are required to retain records by the IRS and other government agencies.
- Organizations should also keep paper and electronic files that would be needed to comply with Single Audit requirements.
- An important aspect of accurate recordkeeping for nonprofits is that it will enable an organization to monitor the progress of campaigns and programs.
- It ensures smooth operations and financial transparency, as well as protects your organization in case of an audit or legal matters.
- Failure to keep proper financial records can result in legal and financial consequences for nonprofits.
- Annually, your nonprofit will need to file IRS Form 990 Series and a Charitable Solicitation Registration for the state in which your nonprofit resides.
The size of your nonprofit may dictate what type of recordkeeping systems you employ, but all organizations need to keep all documentation that supports their claims. Another reason for good record keeping is to substantiate revenues, expenses, and deductions for Unrelated Business Income Tax purposes. A 501c3 nonprofit organization must appropriately track the revenues and expenses subject to UBIT so that it can prepare its UBIT return on Form 990-T, Exempt Organization Income Tax Return. Records will include statements, canceled checks, cash register receipts, credit card sales slips, invoices, and petty cash slips. You will need to keep different kinds of records related to your nonprofits activities and organization.
- Case histories should include names, addresses, purposes of grants, how the individual was chosen, and the relationship (if any) the individual has with any member, officer, trustee, or donor of the organization.
- The retention period for financial records varies depending on the type of document and legal requirements.
- You are advised to seek legal counsel regarding your own document retention policies.
- The first tax return decides the method that the organization will use to calculate its financial health.
- It also helps organizations save storage and operating expenses when dealing with large amounts of printed or digital files.
Board minutes are the written record of the actions and decisions taken at a board meeting. Once written and approved by the board, the minutes are accepted as a true representation of the meeting they record and can be used as legal evidence. Now that organizations are back in the office, planning events, and working in their communities again, it’s an excellent time to review their strategy for keeping and destroying paper or electronic files. Tampa, Florida based Electronic Document Management Solution Provider specializing in document management, business process automation and records management. The content of these articles are accurate as of the date noted below each article.
Document Retention Policies for Nonprofits
For more information, see Schedule E, Schools, on the Form 990 and its accompanying instructions. It is important for organizations to maintain revenue and expense statements and balance sheets to prepare accurate financial statements. These statements can help an organization when working with banks, creditors, contributors, and funding organizations. The Income Tax Act has different requirements for different financial records. If you need to keep a specific financial record and for how long depends on the record and the nonprofit. The Income Tax Act and Ontario’s Corporations Act (OCA) require nonprofits to keep records.
Additionally, sales slips, grant award documentation, applications, and other support documents should be kept despite their lack of immediately apparant relevance. Actual method – using the actual method allows nonprofit organizations to report only the income during the tax year. Expenses, whether they are paid or not, are usually recorded in the year they happened. Your local state association of nonprofits may offer a state-specific sample document retention policy as a member-only resource.
If the nonprofit cannot show through its records that it qualifies for exemption, it could lose its tax-exempt status. The CRA also has more specific requirements on how long and where to keep your records as well as what format to keep them in. This blog post explains how long the Canada Revenue Agency (CRA) expects you to keep your books and records. Permanent files need to be kept for two years following the date of dissolution. Non-permanent files need to be kept for six years starting from the end of the tax year the files relate to.