Q1. Why is a budget important for a nonprofit institution?
Even if an institution is a charitable nonprofit, it must still adhere to a budget. Nonprofits must be accountable to donors and shareholders for the ways in which they spend their funds. Additionally, although nonprofits are not run for the purpose of making a profit, this does not mean that they can be spendthrift and sink into insolvency. Like all institutions, they must make do with scarce resources and budget them accordingly. In fact, given that nonprofits often are short of funds if donations and other sources of funds are scarce, budgeting may be even more essential.
Nonprofits also employ workers who expect to be paid. Workers do not all work for charities out of the goodness of their hearts, and professional employees are almost always necessary for a nonprofit to be effective. Nonprofits are not necessarily barred from making a profit in the sense that they may run successful fundraising campaigns. But all of the funds are invested back into the organization to pursue its charitable mission.
Q2. Are there any differences between for-profit and nonprofit’s budgets?
Perhaps the most significant difference between the different entities is that a nonprofit organization is not required to produce a balance statement...
A balance statement provides a breakdown of company stock and equity for the purpose of shareholders’ knowledge. Nor does a nonprofit have to produce an income statement, which must be provided by a for-profit entity, showing the for-profit’s “gains, losses, revenue and expenses” (“Differences Between,” 2014, par.2). Instead, a nonprofit is responsible for creating a statement of its financial position, which merely outlines its net assets; a nonprofit is also required to prepare a statement of activities, which states its total revenue and sources of revenue, minus its itemized expenses (“Differences Between,” 2014).
Q3. Explain if nonprofit organizations need to file tax returns in the USA?
Many nonprofit organizations are still not exempt from filing reports with the IRS. First and foremost, nonprofit status is a legal status with strict requirements that the nonprofit must establish. Secondly, nonprofits may receive tax-deductible donations and filing with the IRS ensures that people are taking legitimate deductions when they file their own tax returns. According to the IRS website, nonprofit exempt from paying taxes that have income less than $25,000 (or $50,000 on or after tax year 2010) are not…
