Nonprofit Tax Filing for Schools & Educational Institutions
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Educational Institution as described under Section 170(b)(1)(A)(ii)
- An educational institution’s primary function is a formal instruction facility.
- They have to maintain a faculty and curriculum regularly.
- And have a regularly enrolled number of students that attend where the educational activities of the organization occurs on a regular basis.
Institutions such as primary, secondary, or preparatory schools, high schools, colleges, and universities can thus be considered to be educational Institutions.
Although Federal, State, and other public-supported schools are considered to be educational Institutions, Institutions that engage in both educational and non educational activities do not fall under this category. (unless the non educational activities are incidental to the educational activities).
A recognized university which incidentally operates a museum or sponsors concerts is an educational institution within the meaning of section 170(b)(1)(A)(ii). However, the operation of a school by a museum does not necessarily qualify the museum as an educational institution within the definition of this section.
Tax Exemption for Nonprofit Schools and Educational Institutions
501(c)(3) Educational Institutions
The section 501(c)(3) by the IRS grants the approval for the tax exempt status that an organization’s purpose is for not-for-profit and is exempt from the federal income tax filing.
To qualify for the 501(c)(3) tax exemption status the educational institutions must provide a clear instruction or train individuals to improve their capabilities, or provide public education on items that are beneficial to the community.
Applying for Tax Exemption Status under Section 501(c)(3)
Schools and Educational Institutions have the ability to obtain 501(c)(3) status by applying to the IRS for recognition of tax exemption by filing the IRS Form 1023. To obtain 501(c)(3) status, the organization must submit paperwork to the IRS with the information on how it plans to carry out their educational activities. Once the application has been approved, the IRS will send a “determination letter" that will formally identify and approve the school as a 501(c)(3) organization.
Benefits that 501(c)(3) Status offers the Educational Institution
A number of benefits are provided under 501(c)(3) status which includes
- Exemption from federal or state income taxes
- Exemption from federal or state unemployment tax liabilities
- Exemption from tax-deductible contributions, reduced postal rates, and
- The ability to apply for a larger number of grants.
Annual Filing Requirements for these Nonprofit Educational Institutions
Schools & Educational Institutions which are covered under the Section 501(c)(3), aren’t required to pay their taxes. However, these organizations are required to file information on income and expenses for the accounting period by filing either Form 990, Form 990-EZ, or Form 990-N each year to maintain their tax exempt status. This annual filing requirements is also based on the gross receipts as well the assets value of the educational institution.
Which Annual 990 Form Should be Filed by the Schools & Educational Institutions?
There are three types of 990 Forms that nonprofit schools can file based on their annual gross receipts and asset value:
Form 990-N
Gross receipts less than or equal to $50,000.
Form 990-EZ
Gross receipts less than $200,000 and total assets less than $500,000.
Form 990
Gross receipts more than or equal to $200,000 or total assets more than or equal to $500,000.
Deadline to File Form 990 for Schools & Educational Institutions
Calendar Tax Year Filing
If the school operates on a calendar year (January - December), the nonprofit tax filing due date will be May 15 of the following year.
May 15th
Fiscal Tax Year Filing
Form 990, Form 990-EZ, and Form 990-N must be filed by the 15th day of the 5th month after the end of the educational organization’s accounting period.
15th day of the 5th month
Record Keeping Requirements for Educational Institutions
Exempt educational institutions that file Form 990 or 990-EZ are required to maintain certain records for at least three years.
The following records are to be maintained:
- Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year.
- Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis.
- Copies of all brochures, catalogues, and advertising dealing with student admissions, programs, and scholarships. Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in which publications their advertisements were placed.
- Copies of all materials used by or on behalf of the school to solicit contributions.
Additional Information Required for Educational Institutions
The IRS requires the nonprofits educational institutions to file the additional information based on the organization’s activities. These are done by attaching the schedules along with the respective annual 990 Forms (990/990-EZ).
There are two Schedules that can accompany a Form 990 or Form 990-EZ when filing for an educational organization.
Schedule A
Schedule A is used to provide required information about public charity status and public support. Organizations described in section 501(c)(3) utilize this schedule to explain their program services, as well as give their mission statements or other descriptions of their charitable goals.
Schedule E
Schedule E is used to report information on schools if the organization report themselves as school per Section 170(b)(1)(A)(ii) on Form 990, Part IV, line 13 or Form 990-EZ, Part VI, line 48, or, schedule A, Part I, line 2 and filed along with either Form 990 or 990-EZ, as applicable.
How TaxBandits simplifies the Tax Filing for Schools & Educational Institutions?
Filing taxes for schools with TaxBandits is stress free. TaxBandits offers a simplified process to file appropriate 990 Forms attached with the respective schedules. These schedules are generated automatically based on the information that you provide when preparing your Form 990 with TaxBandits.
Filing your annual 990 returns with the exclusive features such as internal audit checks, the addition of reviewers and approvers, real-time updates, managing worksheet, Bulk Uploading contributors information, along with 100% US-based customer support.
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