2025 Non-Profit Tax Strategies: What You Need to Know

As a non-profit, taxes probably aren’t the first thing you want to think about—but they’re a crucial part of keeping your organization running smoothly. It’s time to make sure your non-profit is in a solid position when it comes to taxes. Whether you’re a seasoned non-profit or just starting out, understanding tax strategies can help you save money, avoid penalties, and ensure your focus stays on the mission.

Here’s what you need to know to get your non-profit tax strategy in shape for 2025:

1. Understand Your Tax-Exempt Status

First things first: Make sure you’re clear on your non-profit’s tax-exempt status. If your organization is officially recognized as a 501(c)(3) by the IRS, you’re eligible to receive tax-exempt status, which means you don’t have to pay federal income taxes on money earned from activities related to your mission.

But don’t assume you’re automatically in the clear. You still need to file annual returns, even if you’re tax-exempt. The IRS requires most 501(c)(3) organizations to file a Form 990, 990-EZ, or 990-N depending on your revenue. Keeping up with these filings ensures you stay compliant and keeps your tax-exempt status intact.

2. Maximize Donor Deduction Benefits

One of the best parts about being a non-profit is the ability to offer donors tax deductions for their contributions. As we head into 2025, you want to make sure your donors know the ins and outs of charitable donations, so they can get the maximum benefit from their giving.

If you’re accepting donations, it’s important to provide your donors with the right paperwork. For cash donations over $250, make sure they get a written acknowledgment from your organization. If they’ve donated goods or services, be sure to give them a receipt that includes a description of the items and an estimate of their value.

You can also encourage donors to think about planned gifts, which can come with extra tax benefits. If your non-profit is looking to expand its donor base, planned giving options like bequests, charitable remainder trusts, and gift annuities can benefit both your organization and the donor’s tax situation.

3. Stay on Top of Sales Tax Exemptions

While most non-profits are exempt from federal income taxes, the same doesn’t always apply to state and local sales tax. Some states offer sales tax exemptions on purchases made by non-profits, but not all states do, and the rules can vary depending on what you’re buying.

For example, if your non-profit buys items for resale (say, for a fundraising event), you may be exempt from sales tax. However, if you’re buying office supplies or other non-resale items, you may still have to pay sales tax in some states.

It’s important to research your state’s specific tax laws to ensure you’re taking full advantage of any exemptions available to you. If you’re unsure, it might be worth consulting a local tax professional.

4. Get Smart About Payroll Taxes

If your non-profit has paid employees, you’ll need to stay on top of payroll taxes. While non-profits don’t have to pay federal income taxes, you’re still required to withhold and remit Social Security, Medicare, and federal unemployment taxes (FUTA).

Beyond federal payroll taxes, some states also have state income tax withholding and unemployment taxes to manage. Be sure you’re correctly classifying your workers, whether they’re full-time, part-time, or independent contractors, and that you’re meeting all payroll tax deadlines.

One thing to remember in 2025: Any changes to tax law (which is always possible) may affect your payroll tax rates or filing requirements. So, it’s a good idea to keep up to date with any updates from the IRS or your state’s department of revenue.

5. Watch Out for Unrelated Business Income (UBI)

While your non-profit may be tax-exempt, that doesn’t mean all of your income is automatically exempt. If your non-profit earns income from activities that are not related to its mission, this is considered “unrelated business income” (UBI), and it’s subject to taxation.

For example, if your non-profit runs a retail shop or rents out office space for profit, that income may be taxable. The IRS allows non-profits to earn some income from unrelated activities without jeopardizing their tax-exempt status, but there are limits.

If your non-profit is engaged in activities unrelated to its core mission, be sure to keep track of this income and file the proper tax forms, such as Form 990-T, which reports UBI. Failing to report UBI can lead to penalties and jeopardize your tax-exempt status.

6. Consider Property Tax Exemptions

Many states offer property tax exemptions for non-profits, but these exemptions aren’t automatic. To qualify, your non-profit usually needs to be using the property for charitable purposes. If your organization owns property, such as office space or a facility for events, it’s worth investigating whether you qualify for property tax exemptions in your state or local area.

Some states may require you to apply for this exemption each year, so don’t assume you’re automatically exempt. Local governments may have different rules, so be sure to check in with your county or city tax office.

7. Track Expenses for Tax Deductions

Non-profits can deduct certain expenses that are directly related to their operations. These include things like office supplies, professional fees, and marketing costs. Keeping a detailed record of these expenses is crucial to maximizing your deductions and reducing your taxable income.

Use accounting software or a dedicated team member to track these expenses throughout the year so you can accurately report them when tax season comes around. The more organized you are, the easier it will be to reduce your taxable income and keep your finances in check.

Tax strategies may not be the most exciting part of running a non-profit, but getting them right is key to ensuring your organization stays on solid financial ground. By understanding your tax-exempt status, maximizing donor benefits, and keeping track of your tax responsibilities, you’ll set yourself up for success in 2025 and beyond.

Make sure you’re staying on top of local and federal tax laws, working with professionals when needed, and maintaining clear records. It’s a lot to manage, but a little planning can go a long way toward keeping your non-profit on track.