Tax Considerations for Non-Profits: Understanding IRS Compliance in 2025

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Nonprofit organizations play a critical role in supporting communities, advancing social causes, and providing vital services. While nonprofits are generally exempt from federal income tax, that exemption doesn’t eliminate the need for careful tax planning and regulatory compliance. In 2025, the IRS continues to refine its oversight of tax-exempt entities, making it more important than ever for nonprofit leaders to stay informed and proactive. 

From maintaining 501(c)(3) status to navigating unrelated business income and timely filing of required forms, understanding the latest IRS requirements is essential. In this blog, we’ll break down the key tax considerations nonprofits should be aware of in 2025 and how you can ensure ongoing compliance. 

  1. Maintaining Your Tax-Exempt Status

Your organization’s tax-exempt status is the foundation of your financial strategy. To retain this status, nonprofits must ensure that their operations align with their stated mission and comply with IRS rules. This includes: 

  • Operating exclusively for exempt purposes under section 501(c)(3) (such as charitable, religious, educational, or scientific purposes) 
  • Avoiding private benefit or inurement of net earnings to insiders 
  • Limiting political activity and strictly prohibiting partisan campaigning 
  • Maintaining proper documentation and governance policies 

Failing to adhere to these principles can jeopardize your exemption and lead to significant tax liabilities. 

 

  1. Unrelated Business Income (UBI) and Form 990-T

Not all income earned by a nonprofit is tax-exempt. If your organization regularly generates revenue from activities that are not substantially related to your core mission, it may be considered unrelated business income (UBI). 

Examples include: 

  • Operating a gift shop or cafe 
  • Renting out space for events 
  • Selling advertising in publications 

If your organization earns $1,000 or more in UBI during the year, you must file Form 990-T and may owe Unrelated Business Income Tax (UBIT). In 2025, the IRS continues to enforce UBIT rules with added scrutiny, so it’s crucial to evaluate all income streams and determine whether they trigger tax obligations. 

  1. Timely Filing of Form 990

Nonprofits are required to file an annual return with the IRS—typically Form 990, 990-EZ, or 990-N, depending on gross receipts and total assets. Missing filing deadlines or filing incomplete forms can result in financial penalties and, after three consecutive years of non-filing, automatic revocation of tax-exempt status. 

Key tips for 2025: 

  • Due Date: The return is generally due on the 15th day of the 5th month after the end of your fiscal year. 
  • Electronic Filing: The IRS now mandates e-filing for most nonprofits. 
  • Schedule B Privacy Rules: Public charities can omit donor names but must include contribution amounts. 

If you need additional time, be sure to submit Form 8868 for an automatic 6-month extension. 

  1. Form W-9 and Independent Contractors

If your nonprofit pays independent contractors or service providers $600 or more during the year, you are required to collect a Form W-9 and issue Form 1099-NEC by January 31, 2026. Proper classification between employees and contractors is essential, as misclassification can lead to IRS penalties. 

Best practices include: 

  • Keeping detailed service agreements 
  • Verifying tax ID numbers and business status 
  • Maintaining accurate records of all payments 

  1. Charitable Contribution Acknowledgments

To ensure donors can claim tax deductions, nonprofits must provide written acknowledgments for contributions of $250 or more. These acknowledgments must include: 

  • The amount or a description of the donation 
  • A statement of whether goods or services were provided in exchange 
  • A good-faith estimate of the value of any goods or services provided 

In 2025, the IRS continues to emphasize substantiation and recordkeeping, especially in audit scenarios. 

  1. Fundraising Compliance and State Filings

While the IRS oversees federal tax exemption, nonprofits must also comply with state-level charitable solicitation laws. This includes: 

  • Registering with state charity offices 
  • Renewing registrations annually 
  • Filing state tax or sales tax exemption forms 

Some states have adopted the Unified Registration Statement (URS) to streamline the process, but requirements vary widely by state. For organizations operating in multiple states—or fundraising online—this compliance is even more critical in 2025. 

  1. Recent IRS Updates Nonprofits Should Know

The IRS has made several updates in recent years that may affect nonprofits in 2025: 

  • Increased scrutiny of donor-advised funds (DAFs) and how nonprofits receive contributions from them 
  • Digitization of IRS communications, with more notices and follow-ups handled electronically 
  • Greater focus on governance practices, including conflict-of-interest policies and board oversight 

It’s important to work with a trusted advisor to monitor these developments and adjust your policies accordingly. 

How Brady Martz Can Help 

Tax compliance doesn’t have to be overwhelming. At Brady Martz, our team of nonprofit specialists is here to help your organization stay on track, mitigate risks, and plan confidently for the future. From preparing Form 990 to advising on unrelated business income and navigating federal and state requirements, we’re your partner in proactive compliance and strategic growth. Let us help you focus on what matters most—advancing your mission.