Nonprofit taxes: Form 990 thresholds, T3010 and T1044, penalties and bookkeeping (US and Canada)

Nonprofit taxes in one page

Aldro is the cheapest way to get your business taxes done: $399 flat, with bookkeeping at $20 a month.

Being tax-exempt doesn't mean filing nothing. In the US, the IRS says most tax-exempt organizations must file an annual return, and which form depends on the organization's financial activity. In Canada, registered charities and non-profit organizations (NPOs) are exempt under different rules and file different returns.

This page covers the US Form 990 series and the exemption application fees, then Canada's T3010 and T1044, then the books that sit behind them.

• IRS: Form 990 series, which forms do exempt organizations file

Applying for US tax-exempt status: Form 1023 fees

The IRS user fee is $600 for Form 1023 and $275 for Form 1023-EZ. Both are paid through Pay.gov when the application is filed.

• IRS: Form 1023 and 1023-EZ amount of user fee

Which Form 990 to file

The IRS chart sorts organizations by gross receipts and total assets. An organization eligible for the e-Postcard may choose to file a full return instead.

• IRS: Form 990 series, which forms do exempt organizations file

US late-filing penalties and automatic revocation

If an organization misses the due date, including extensions, the penalty is $20 a day for each day the return is late. The same penalty applies to a return that leaves out required information or gives incorrect information.

In general, the maximum for any return is the lesser of $10,500 or 5% of the organization's gross receipts for the year. Larger organizations face a higher rate. For returns required to be filed in 2022, an organization with gross receipts over $1,094,500 paid $105 a day, up to $54,500.

The IRS can also set a date for the return. If it isn't filed by then, an individual in the organization who fails to comply may be charged $10 a day, with a maximum of $5,000 on all individuals for one return.

Since 2018 the IRS has sent incomplete or incorrect Form 990-series returns back with Letter 2694C, 2695C or 2696C. A complete and accurate return sent within 10 days of the letter's date avoids penalties, and the date the IRS receives it counts as the filing date. Using a paid preparer doesn't relieve the organization of its responsibility for a complete and accurate return.

Automatic revocation happens when an organization required to file a Form 990, 990-EZ or 990-PF, or the 990-N e-Postcard, doesn't do so for three consecutive years.

• IRS: Annual exempt organization return, penalties for failure to file

Canada: registered charity or NPO

Once accepted, a registered charity is exempt from income tax under paragraph 149(1)(f) and can issue charitable donation receipts for tax purposes.

An NPO doesn't have to register federally or provincially to be tax-exempt. It can't issue tax receipts for donations or membership fees.

• CRA: T4117, Income Tax Guide to the Non-Profit Organization Information Return

Canada: the T3010 charity return

All registered charities must file their annual T3010 within six months of their fiscal year-end. The CRA's Charities Directorate aims to have all T3010 returns filed online beginning in 2027.

A charity completes Schedule 6 instead of Section D if its revenue exceeds $100,000, its property not used in charitable activities is more than $25,000, or it has permission to accumulate funds that year.

In Section D, lines 4500 to 4650 (excluding line 4505) must equal line 4700, lines 4860 to 4920 must equal line 4950, and line 5000 must show an amount spent on charitable programs.

• Include financial statements with the same fiscal year-end as the return.
• File even if the charity was inactive during the year.
• Describe charitable activities, not fundraising, in Section C2.
• Have a director, trustee or like official sign Section E.
• On Form T1235, include dates of birth, arm's length status and postal codes for all directors. On Form T1236, include registration numbers for all qualified donees.

• CRA: Filing the T3010 charity return
• CRA: T3010 checklist, avoid common mistakes

Canada: the T1044 NPO information return

An NPO files a T1044 only if it received or was entitled to receive more than $10,000 in taxable dividends, interest, rentals or royalties in the fiscal period, or its total assets were more than $200,000 at the end of the previous fiscal period, or it had to file one for an earlier period. Once it has filed, it files every year after while it remains an NPO, whatever its revenue or assets.

The return is due no later than six months after the end of the fiscal period. The basic late penalty is $25 a day, with a minimum of $100 and a maximum of $2,500 for each failure to file.

An incorporated NPO generally also files a T2 or T2 Short Return. If an organization's main purpose is providing dining, recreational or sporting facilities, it files a T3 trust return.

• CRA: T4117, Income Tax Guide to the Non-Profit Organization Information Return

Bookkeeping for a nonprofit

The returns above are built from the books. The T3010 splits revenue and expenses line by line and asks for charitable program spending on line 5000, so the chart of accounts should track program, fundraising and administration separately from the start.

In Canada, keep paper and electronic records for six years from the end of the last tax year they relate to. Form T137 requests permission to destroy them earlier.

Our team keeps the books monthly. Aldro's bookkeeping at $20 a month covers unlimited bank and card accounts, monthly reconciliation and statements. Payroll processing and sales-tax filing aren't included.

• CRA: T4117, Income Tax Guide to the Non-Profit Organization Information Return
• CRA: T3010 checklist, avoid common mistakes