A nonprofit is accountable to donors, funders, the IRS, and often state regulators. Its books need to answer questions a for-profit never faces: was this money restricted, did we spend it for the stated purpose, and how much went to programs versus overhead?
What is different about nonprofit books
- Net assets are classified as with or without donor restrictions.
- Grants and contributions may carry conditions or restrictions on use.
- Expenses are reported by function: program, management and general, and fundraising.
- Donated goods and services may need to be recorded.
- The year-end result is not profit, and reports focus on change in net assets.
Fund and grant tracking
Using classes or funds in your accounting software lets you see how much of each restricted gift or grant has been spent and what remains. Funders often require reports showing exactly this. Set up tracking when the grant starts, not at reporting time.
Functional expense allocation
Form 990 asks nonprofits to allocate expenses among program services, management and general, and fundraising. Shared costs such as rent, salaries, and utilities need a reasonable, documented allocation method. Doing this monthly is much easier than at year-end.
Donor acknowledgments
- Donors generally need a written acknowledgment for contributions of $250 or more to claim a deduction.
- Special disclosure rules apply when a donor receives something of value in return for a payment above a set amount.
- Your books should distinguish gifts from payments for goods and services.
Payroll, contractors, and compliance
- Payroll taxes apply to nonprofit employees much like other employers.
- Contractors should be documented and reported where required.
- State charitable registration and annual reports are separate filings.
- Keep records supporting the three-year filing rule. Read Form 990 deadlines and the three-year rule.
Costs
Nonprofit bookkeeping is priced by activity, number of funds and grants, payroll, and reporting needs, much like other bookkeeping. We do not quote figures here because we could not verify reliable current sources. For the return itself, see Form 990 preparation cost, and for general fee drivers see monthly bookkeeping cost.
Our bookkeeping service supports nonprofits and NGOs from setup through Form 990 preparation. To get help with nonprofit tax filing, tell us your organization's size, grants, and filing status.
