How to File a Tax Extension for a Nonprofit: What You Need to Know

Apr 28, 2023

Nonprofits play an essential role in our society, offering services, support, and resources to communities in need. As a nonprofit organization, you are bound to meet a series of deadlines, including submitting tax returns each year. 

However, there may be times when you need help to complete the necessary information on time. In such cases, filing a tax extension can offer you more time to complete the process. In this article, we will explore the critical information that nonprofits need to know when it comes to filing tax extensions

We will cover the reasons why you may need to file for an extension, the steps you need to follow, the timeline you need to keep in mind, and the penalties for not meeting the deadlines. 

Reasons for Filing a Tax Extension

Nonprofit organizations have various factors that may necessitate filing a tax extension. One common reason is dealing with incomplete financial records. Nonprofits may need to rely on funding from multiple sources, including donations and grants, and tracking these financial flows can take time and effort. 

Other usual factors include unexpected delays in getting documents from third parties, such as banks or brokers, and changes in board leadership, which can cause disruption in financial management. Applying for a tax extension provides some benefits, such as avoiding late-filing penalties, buying more time to present financial documents to the IRS, and not rushing the filing process to avoid making mistakes. 

It’s essential to note that an extension only extends the time to file the return rather than the time to submit any outstanding taxes that are due to the IRS. Nonprofits should ensure they submit accurate estimates of how much they owe alongside their extensions to avoid penalties and interest charges. 

Overall, nonprofits can use tax extensions as a valuable tool to ensure they meet the IRS filing requirements and prevent any unnecessary financial penalty or audit notices.

Understanding the Extension Request Process

As nonprofits navigate the complex world of tax compliance, the process of requesting an extension can often present its own unique challenges. Yet with proper knowledge and preparation, organizations can confidently navigate the extension request process. 

To that end, let us explore the tax extension request process for nonprofits in more detail and examine the role of IRS Form 8868 in this process.

Automatic 6-Month Extension

The IRS allows nonprofit organizations to take advantage of an automatic 6-month extension for filing their tax returns. This means nonprofits can get extra time to file their annual return without penalty if they meet certain eligibility criteria. 

To be eligible for the automatic extension, a nonprofit organization must file Form 8868 before the original due date of their tax return. Additionally, the nonprofit must provide a valid reason for needing an extension, such as a natural disaster or other unforeseeable circumstances. Form 8868 can be filled out and submitted electronically, making the process quick and easy. 

Automatic 6-Month Extension

 

Nonprofits that submit Form 8868 before the due date of their tax return will automatically receive an extension for an additional 6 months. It is important to note that this extension only applies to the filing of the tax return, not the payment of any tax owed. Nonprofits anticipating owing taxes should estimate and pay their tax liability by the original due date of their return.

Additional (Non-Automatic) 3-Month Extension

In addition to the automatic 3-month extension for nonprofits, there is also the option for a non-automatic 3-month extension, which the organization must request. To be eligible for this extension, the nonprofit must have already been granted the automatic 3-month extension and have a valid reason for needing the additional time. 

Valid reasons can include incapacitation, incapacitation of an immediate family member, or a disaster affecting the organization. To request the non-automatic extension, the organization must file Form 8868 with the IRS by the original due date of the return or the end of the automatic extension period. 

Along with the form, the nonprofit should provide documentation supporting their reason for needing the extension. It is important to note that this extension is not guaranteed and will be granted by the IRS on a case-by-case basis.

How to File Form 8868: Step-by-Step Guide

If you are a non-profit organization and need additional time to file your tax returns beyond the original due dates, you may need to file Form 8868. This form provides an extension of time to file Form 990, Form 990-EZ, Form 990-PF, or Form 990-T. 

However, it’s important to note that Form 8868 does not grant an extension of time to pay any tax that may be due.

To help guide you through the process of completing and filing Form 8868, we’ve put together a comprehensive step-by-step guide below. Follow along to ensure that you accurately complete the form and meet the necessary deadlines.

Step 1: Gather the Required Information

To complete Form 8868, you will need to gather several pieces of information about your organization. First and foremost, you will need the organization’s name, address, and employer identification number (EIN). 

Additionally, you may need the name and address of the organization’s principal officer or authorized representative, as well as the organization’s tax year and the type of return it filed for that year. It’s essential to keep accurate records throughout the year to ensure that all of this information is readily available when it’s time to file Form 8868. 

Maintaining complete and organized records can also help you prepare for filing other tax forms and make the process smoother overall. Consider keeping digital copies of important documents and using accounting software to track income and expenses. 

Step 2: Complete Form 8868

Form 8868 is an application for an automatic three-month extension of time to file an exempt organization return. It is used by tax-exempt organizations with filing deadlines that fall on the fifteenth day of the fifth month after the close of the organization’s tax year. The form is divided into six parts, each requiring different information from the organization. 

Part I asks for general information, such as the name and address of the organization, as well as its employer identification number (EIN), which is a unique nine-digit number assigned by the IRS. 

Part II is only required if the organization is requesting an additional three-month extension beyond the automatic three-month extension. In this case, the organization must explain why the extension is needed.

Part III is where the organization must select the type of return it is requesting an extension for. Common types of exempt organization returns include the Form 990, which is a return for organizations that make $200,000 or more of gross receipts or have total assets of $500,000 or more, and the Form 990-EZ, which is a simplified version of the Form 990. 

Part IV is only for organizations that are applying for an extension for Form 990-BL, which is a return for organizations that conduct bingo or other gaming activities. 

Part V is for organizations filing Form 4720, a return for certain excise taxes on charities and other nonprofit organizations. 

Complete Form 8868

 

Part VI asks for any payments made with the extension request.

Common mistakes when completing Form 8868 include providing incorrect or incomplete information, selecting the wrong type of return, and not providing a proper explanation for the need for an extension. To avoid these mistakes, it is important to carefully review the instructions and double-check all information provided on the form. Additionally, organizations should make sure to provide a clear and detailed explanation for any additional extension requests beyond the automatic three-month extension. 

By carefully filling out Form 8868, organizations can ensure that they receive the necessary extensions and avoid potential penalties for failing to file their returns on time.

Step 3: Submit Form 8868

There are primarily two methods of submitting Form 8868, the Application for Extension of Time to File an Exempt Organization Return. The first and most convenient method is electronic filing or e-filing. The IRS provides an online platform to submit the form electronically, and it is available on their website. 

Additionally, many third-party providers offer electronic filing services. It’s important to note that if you are submitting Form 8868 electronically, you must do so before your return’s original deadline. 

The second method is to mail the completed Form 8868 to the IRS address mentioned in the instructions, and it must be postmarked by the original due date of the tax return. This method takes longer to process, and an approved extension will be sent via mail or fax. It’s crucial to keep in mind that filing Form 8868 only extends the deadline for your tax return, not the deadline for paying the taxes owed. 

Therefore, you will need to estimate and pay any taxes due by the original due date of the tax return.  In general, the deadline to submit Form 8868 depends on the type of organization and the original due date of the tax return. For most tax-exempt organizations, the deadline to file Form 8868 is the 15th day of the fifth month after their tax year ends. 

For example, if your tax year ends on December 31, the deadline to file Form 8868 for your organization would be May 15. However, some organizations like private foundations and certain trusts, have different due dates. 

Important Considerations When Filing a Tax Extension

Filing a tax extension is an option available for nonprofits that need more time to file their tax returns. However, it’s important to note that filing an extension only provides additional time to pay any taxes that may be owed. 

Therefore, nonprofits that owe taxes should still pay their estimated tax amount by the original tax deadline to avoid penalties and interest charges. Additionally, not filing an extension can result in late filing penalties and further interest charges. 

Nonprofits that don’t file their tax returns on time can face a penalty of 5% of the unpaid taxes per month, up to a maximum of 25%. Filing a tax extension late also incurs a penalty of 5% of the unpaid taxes for each part of a month the return is late, up to a maximum of 25%. 

It’s essential for nonprofits to timely file their tax returns or request an extension before the original deadline to avoid being assessed penalties and interest charges by the IRS.

Partner With UltimateTax for Your Nonprofit Tax Extension Needs

If you’re a non-profit organization looking for a reliable and user-friendly tax extension service, look no further than UltimateTax. We offer a range of solutions tailored to meet the specific needs of nonprofits, including customizable forms and reporting options. 

UltimateTax for Your Nonprofit Tax Extension

By partnering with UltimateTax, you can rest assured that your tax preparation process will be streamlined and straightforward, so you can focus on your organization’s core mission. Our software is designed to be intuitive and easy to use, and our team of experts is always available to provide support and guidance as needed. 
Contact us today to learn more about how we can help your non-profit organization streamline its tax extension process and improve its financial management.

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