Hi,
Most nonprofits overpay thousands every year, usually because being tax-exempt makes everyone assume there is nothing left to save. However, most likely your payroll provider processes what it is told to and a generic bookkeeper does not go looking into your financials.
If any of this sounds like your organization, you are probably leaving money on the table:
- You have employees on payroll
- You run on federal grants, or on subawards passed through a state or another nonprofit
- You buy supplies, equipment, or services for your programs
- You own or rent the space you operate in
Here is where the money usually is:
- Federal unemployment tax you should not be paying at all. A 501(c)(3) is exempt from FUTA. If your payroll provider is still filing Form 940 and withholding it, that is money going out the door for a tax you do not owe.
- State unemployment you can opt out of. A 501(c)(3) can elect to reimburse the state for actual unemployment claims instead of paying the quarterly tax. For an organization with steady, low-turnover staff, that often saves real money every year. It is a genuine decision, not a free lunch – you take on the claims risk in a layoff year – but most boards have never even been shown the option.
- Overhead you are allowed to recover but aren’t. The de minimis indirect cost rate on federal and pass-through grants rose from 10% to 15% of your direct costs. If your grant budgets still say 10%, you are recovering a third less overhead than the rules now allow, on every grant you run.
- Sales and property tax you may not owe. Many states exempt 501(c)(3)s from sales tax on purchases and from property tax, but only if you apply. Plenty of organizations pay both for years without realizing they qualified the whole time.
The catch is that none of this is automatic. Nobody sends you a letter. Each one has to be claimed, elected, or applied for, and the provider filing your payroll or booking your grants is not the one watching for it. You cannot recover what nobody is tracking.
Reply to this email by Friday and we will set up a free 15-minute call with one of our senior nonprofit specialists to see how much of this applies to you. Bring a recent payroll tax filing and one grant budget, and we will tell you on the call where you are likely overpaying.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com