8 tips to determine your not-for-profit’s year-end
Not-for-profits have a luxury that most other individuals and businesses do not. They’re allowed to select their fiscal year-ends for IRS purposes. Partnerships, sole proprietorships, S corporations and other legal structures, with limited exceptions, may not. These groups generally are required to use calendar year-ends for tax filings. Read on to find out what a not-for-profit should consider when choosing a year-end date.
How does a not-for-profit choose its year-end?
By default, many not-for-profits are organized with a calendar year-end, but not-for-profits should assess if this is the best choice. A thoughtfully chosen year-end may produce more meaningful financial statements, ease reporting requirements and even save the organization money. Before deciding on a year-end, organizations should consider the following factors:
- Programmatic timing. Choose a year-end that aligns with your key program(s). For example, I had the opportunity to help a not-for-profit festival set up its financial records. It was a summer festival that took place in late July/early August. They held an annual event in April to promote the festival and in November began accepting applications and fees for the following summer’s festival. After reviewing their operating cycle, it made sense to select October 31 as their year-end. That year-end gave the organization a couple of months to pay its bills and close out the festival’s books. It also allowed the application fees received in November to be recorded in the same fiscal year the event was held.
- Year-end of major funder. A not-for-profit organization that receives predominantly all of its funding from a government entity, for example, may want to align its fiscal year with the government’s. Having a year-end that coincides with the timing of awards would simplify the not-for-profit’s grant reporting.