Accounting and tax best practices for your not-for-profit in 2024

As we embark on a new calendar year, Baker Tilly’s not-for-profit (NFP) specialists highlight accounting, tax and compliance best practices for not-for-profit organizations. For a deeper dive into this guidance, watch our on-demand webinar, 2023 not-for-profit and higher education accounting and tax update: the year in review and what to expect in 2024.

Not-for-profits must consider the following general practices:

• Understand and comply with NFP-specific accounting rules, regulations and tax requirements
• Adhere to tax filing requirements and understand the tax laws for tax-exempt entities
• Ensure the Board of Directors are independent of the organization and establish an audit and/or finance committee
• Develop realistic fundraising objectives and a long-term strategic plan
• Recruit individuals with NFP accounting experience and strong ethical behavior
• Invest in high-quality accounting software for tracking and interfacing
• Maintain a focus on budgeting and forecasting and monitor finances regularly to adjust for any changes occurring during the year
• Develop strong internal controls to help maintain financial accuracy and transparency and create checks and balances internally
• Establish segregation of duties in key accounting areas
• Monitor donations and in-kind contributions and ensure compliance with donor intent
• Prepare timely financials and engage an auditor to obtain an annual external audit
• Monitor overhead costs to ensure proper expense allocations
• Recognize the current NFP environment and areas where fraud could take place
• Realize cybersecurity risks and take preventative measures to help mitigate those risks

NFP accounting best practices

The following internal control and financial reporting tips can help enhance your organization’s accounting processes.

• Try to digitize as much as possible
• Develop narratives and flow charts for key processes and update them annually
• Demonstrate access to source documentation
• Collect all formal agreements and permanent documents together for easy access

NFP tax best practices

The following guidelines can help improve your organization’s tax compliance.

• Discuss and share the final tax return draft with the board before filing
• Ensure the Form 990’s mission description is clear to properly educate potential donors about your organization.
• Maintain detailed records for special events and non-cash contributions
• Examine qualification and public support requirements each year
• Monitor any unrelated business income (UBI) using a three-part test. Determine the following: 1. whether it relates to trade or business, 2. whether it is regularly carried out and 3. whether it is not substantially related to the exempt purpose of the organization.

Baker Tilly is here to help

Our industry-focused team of NFP accounting and tax specialists are here to answer your questions and guide you on the road to compliance and success. Connect with us today to learn more about how we can help protect and enhance your organization’s mission.