If you have a passion for a nonprofit cause, whether it’s helping the homeless or raising money for medical research, then a career in nonprofit accounting could be a great choice for you. As a nonprofit accountant, you can put your accounting skills and education to work helping organizations keep track of their income and expenses and manage their tax responsibilities. Certified public accountants (CPAs) who work with nonprofits handle many clients just as CPAs working with companies and individuals do.
Why Nonprofits Need Accountants
Like for-profit companies, nonprofits have a need for accounting. After all, accounting is the preparation of financial documents, and even tax-exempt organizations must know where their money is coming from and where it’s going to be able to achieve their charitable goals. A nonprofit accountant can help organizations keep track of their assets and liabilities and plan to reach their goals.
Working with a Tax-Exempt Nonprofit
Some nonprofits, like those with the designation of 501(c)(3), are tax-exempt. These include religious groups and churches, public schools and colleges, certain hospitals and medical facilities, fraternal organizations, industry groups and social welfare groups. Although they are considered tax-exempt, these organizations are still accountable to the Internal Revenue Service (IRS).
Accountants working with tax-exempt organizations help these organizations prepare financial statements such as a Statement of Cash Flows, Statement of Activities, Statement of Financial Position and Statement of Functional Expenses. They help the organizations keep track of various sources of income, from donor contributions to money made from fundraising events, and to track their expenses. Depending on various federal, state and local laws, nonprofits that are exempt from paying income tax may still have to pay employment taxes, real estate taxes and sales taxes.
Not all nonprofit organizations are classified as a 501(c)(3). Nonprofits with a different designation must follow different rules and regulations, and they may not even be entirely income tax-exempt. These organizations need to work with accountants who thoroughly understand the tax laws that apply to their type of nonprofit.
Challenges of Nonprofit Accounting
Accounting for nonprofit organizations is a growing niche in the field of accounting, but it presents challenges of its own, Accounting Today reported. Because nonprofits are often strapped for cash – and trying to make every dollar go farther – they may not be willing or able to pay accountants as much as for-profit businesses do. Nonprofit accountants often set a fixed fee to do the accounting and auditing work for an organization, which means they must estimate how much work the job will take and be comfortable with the fee they set. Because nonprofits don’t have owners in the same way as for-profit companies do, nonprofit accountants may have to work harder to establish and maintain relationships with an ever-changing board of directors.
Despite the challenges, nonprofit accounting is a rewarding niche. Accountants who work with nonprofit organizations help them keep track of their resources so they can be put to good use.