Karen Hughes, CPA
PO Box 26083, Honolulu, HI 96825
Telephone: 808-221-0138
Email: karenhughes28@gmail.com
You formed an entity….now what?
 Sole Proprietorship
 Limited Liability Company (LLC)
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* Single-member LLCs
* Multiple-member LLCs
Partnership
Corporation
S-Corporation
Nonprofit Organization
We’ll focus on the
nonprofit organization today…
Nonprofit Organizations
Today we’ll cover the basics:
 Tax exemption application
 Federal taxation
 State taxation
 Department of Attorney General requirements
 Hawaii General Excise Tax
Federal Tax Exempt Application
 Most commonly the 501(c)3 application
 Who can file?
Must be organized as a trust, corporation, or an
association
Organizations organized and operated exclusively for
religious, charitable, scientific, testing for public safety,
literary, or educational purposes, or to foster national or
international amateur sports competition, or for the
prevention of cruelty to children or animals
Federal Tax Exempt Application
 You may not have to file if annual gross receipts
normally under $5,000; churches also do not need to
file
 You may be tax exempt under above circumstances but
you must file the application and receive exemption
recognition from the IRS for the donations made to
your organization to be tax deductible
Federal Tax Exempt Application
 File within 27 months from date of entity formation for
tax exempt status to apply retroactively to date of
formation
 If you don’t file within 27 months of formation, you
may not be able to qualify for exempt status before IRS
receives application, generally the postmark date is
used
Federal Tax Exempt Application
 Application will be available for public inspection, so
carefully and correctly complete your application
 A charitable organization must make available to the
public their approved exempt application, all
supporting documents, last 3 annual information
returns upon request without charge (reasonable fee
for reproduction and copying costs are ok). The IRS
imposes penalties for failure to comply with these
requirements
Federal Tax Exempt Application
How do you file and how much does it cost?
 Generally on Form 1023 for 501(c)3 organizations,
available at www.irs.gov
 Cost to file: $400 those with annual gross receipts less
than $10,000 during preceding 4 years; $850 for those
with annual gross receipts more than $10,000
 Be sure to review application carefully before you
submit! Call IRS if you do not hear from them within
180 days
Federal Tax Exempt Application
 In 2014 the IRS created Form 1023-EZ and you can
apply online. There’s a 7-page eligibility worksheet to
determine if you can use Form 1023-EZ instead. You
must answer “No” to all the questions to qualify to file
Form 1023-EZ. Look under Form 1023-EZ instructions
 Fee is $400
 Much shorter and simplified application. If approved,
as quickly as 3 to 4 weeks. Call IRS if you do not hear
from them within 90 days
 http://www.stayexempt.irs.gov/
Federal Tax Requirements
What do you need to file annually with the IRS?
 Generally file one of the 990-series forms
Status
Form to File
Gross receipts normally < $50,000
990-N (e-Postcard)
Gross receipts < $200,000, and
Total Assets < $500,000
990-EZ or 990
Gross receipts > $200,000, or
Total assets > $500,000
990
Private foundations – regardless of
financial status
990-PF
Federal Tax Requirements
 File Form 990-N E-Postcard at
http://epostcard.form990.org/
 Other 990 Forms can be found on www.irs.gov
Due dates for filings:
Generally on the 15th day of the 5th month after year ends
Example: nonprofit organization with year end
12/31/2014 – filing will be due 5/15/2015
Nonprofit organization with fiscal year end 7/31/2015 –
filing will be due 12/15/2015.
May apply for two – 3 month extensions
Federal Tax Requirements
 Be sure to file your annual tax or informational
returns. If you do not file for 3 consecutive years, you
will automatically lose your tax exempt status.
 There is a list on IRS website of organizations whose
tax-exempt status was automatically revoked because
of failure to file. There are about 3100 organizations in
State of Hawaii whose tax exempt status was revoked
due to noncompliance
 If you do not have tax-exempt status, you must file a
return based on your entity type
Federal Tax Requirements
 IRS penalties for nonfiling of Form 990 are high:
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$20/day, about $600/month, not to exceed lesser of $10,000 or
5% of the organization’s gross receipts for that year, unless you
can show late filing was due to reasonable cause
Organizations whose gross receipts exceed $1 million are
subject to penalty of $100/day, about $3,000/month, with
maximum penalty for any one return of $500,000
Penalties against responsible person(s) may also be imposed if
the IRS notifies organization to file if the organization
continues to remain noncompliant. The penalty is $10/day
with maximum penalty on all persons for failure to file any one
return not to exceed $5,000
Hawaii State Tax Requirements
 In general, if you have a federal tax exempt status, you
do not need to file a Hawaii state tax exempt/nonprofit
organization tax return
 Unless, you have Hawaii gross income from an
unrelated trade or business activity of $1,000 or more.
File Hawaii Form N-70NP. Forms and instructions are
available online at www.tax.Hawaii.gov/forms
Dept of Attorney General
Requirements
The State of Hawaii Department of Attorney General’s
Tax & Charities Division administers and enforces
Hawaii’s charitable solicitation law and provides
oversight of Hawaii’s public charities, charitable trusts,
and private foundations.
Visit their website at www.ag.Hawaii.gov/tax
Dept of Attorney General
Requirements
 If your organization solicits contributions, you must
register unless you are exempt:
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Churches and other religious organizations
Parent-teacher association
Organization normally receives less than $25,000 in
contributions annually, if organization does not compensate
any professional solicitor or professional fundraising
counsel
Other less common organizations
Dept of Attorney General
Requirements
 Register your organization if necessary (no cost):
http://efile.form990.org/frmNPRequestLogin.asp
 File annual financial report “Hawaii Charity Annual
Transmittal Form” and attach PDF copy of the filed
IRS Form 990 or 990EZ or prepare on their website
 If you file federal Form 990-N (E-Postcard), file
“Annual Charity Transmittal Form” with AG
 File annual reports here: http://efile.form990.org
and click on “Hawaii” under Quick Menu
Dept of Attorney General
Requirements
 If you file Form 990 or 990EZ, the annual report due to AG
is the due date of the Form 990/990EZ including
extensions
 If you file Form 990-N, the annual report due to AG is no
later than the 15th day of the 5th month following close of
organization’s fiscal year
 Organizations who receive more than $500,000 in gross
revenues or have an audited financial statement because it
was required to obtain one by another governmental
agency or 3rd party, must also submit a copy of the audited
financial statement
Dept of Attorney General
Requirements
Filing fees are based on organization’s gross revenues:
Gross Revenues
Annual Fee
Less than $25,000
$10
$25,000 but less than $50,000
$25
$50,000 but less than $100,000
$50
$100,000 but less than $250,000
$100
$250,000 but less than $500,000
$150
$500,000 but less than $1 million
$200
$1 million but less than $2 million
$250
$2 million but less than $5 million
$350
$5 million and over
$600
Dept of Attorney General
Requirements
 Late Fees:
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$20/day up to maximum of $1,000 for late filing
$20/day up to maximum of $1,000 for late payment
You cannot register with AG until you receive your tax
exempt status.
Hawaii General Excise Tax
 Every person doing business during the year in the
State of Hawaii must obtain a license and file returns
 Tax is on gross income, before expenses, with some
exceptions
 Oahu: Also has county surcharge tax of 0.5% because
of rail transit project
Common Tax Rates:
Oahu 4.5%
All other islands 4.0%
Hawaii General Excise Tax
 Even if you are a nonprofit organization, you must file
your general excise tax returns
 Revenues related to your organization mission is tax
exempt if you have a GE tax exemption (still file a
“zero” return)
 Fundraising revenues and other “unrelated business
income” are subject to GE tax. Fundraising income is
subject to the 4% tax rate.
Hawaii General Excise Tax
 To obtain a GE tax license:
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Use Hawaii Business Express to obtain a GE tax license:
https://hbe.ehawaii.gov/BizEx/home.eb
Or file Form BB-1 or BB-1X
 Register to file and pay GE tax returns online:
http://tax.hawaii.gov/eservices/
Or file on paper Forms G-45 (don’t forget annual Form G-49)
Forms are available at www.tax.Hawaii.gov/forms
Hawaii General Excise Tax
How often do I need to file?
Semi-Annually: if you will pay $2,000 or less in GE taxes per
year (at 4.5% Oahu rate, about $44,500 or less of gross
revenues for the year)
Quarterly: if you will pay $4,000 or less in GE taxes per year
(at 4.5% Oahu rate, about $89,000 or less of gross revenues
for the year)
Monthly: if you will pay more than $4,000 in GE taxes per
year (at 4.5% Oahu rate, gross revenues over about $89,000
for the year)
Hawaii General Excise Tax
When are the filing due dates?
 Semi-annually
January – June period due July 20th
July – December period due January 20th
 Quarterly
January – March due April 20th
April – June due July 20th
July – September due October 20th
October – December due January 20th
 Monthly
Due 20th of each month
(Ex: January is due February 20th)
How do we file for
GE tax exemption?
File paper Form G-6 or G-6S: Application For
Exemption From General Excise Taxes ($20 fee)
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Use Form G6-S (short form) if you are applying within 3 years
from date of organization received or applied for a federal
income tax exemption
All others use Form G-6
If you are a Hawaii organization and file within 3 months from
date your were legally formed, then your approved application
will be effective on date of legal entity formation. If didn’t file
within 3 months, may request for retroactive approval
Hawaii General Excise Tax
Why do we charge 4.712%?
Because we pay tax on
entire amount we collect
from our customers
Example of sales to customer:
Sales $10,000
Oahu GE Tax 4.712% = $471.20
Total sales: $10,471.20
Tax paid to Hawaii State Tax
Collector:
$10,471.20 x 4.5% = $471.20
If we only charged 4.5% to our
customers……..
Sales $10,000 x 4.5% = $450
Total sales: $10,450
Tax paid to Hawaii State Tax
Collector:
$10,450 x 4.5% = $470.25
$470.25 - $450.00 = $20.25
which we have to pay out of
pocket