Top 25 Tax Planning Tips for Nonprofits in 2025

Year-end tax planning is vital for nonprofit organizations to ensure regulatory compliance and strengthen financial operations. While these organizations are exempt from income tax, they still face important tax obligations that must be addressed before the fiscal year closes. 

Key Deadlines to Keep in Mind: 

Tax compliance is an ongoing responsibility—not just a year-end task. The 2025 tax landscape introduces both relief and complexity, including new above-the-line charitable deduction rules. Forward-thinking nonprofit leaders are adapting their strategies to stay compliant and amplify their mission. 

Use this guide to navigate tax requirements confidently while maximizing your organization’s impact. 

Essential Tax Tips for Nonprofits: What's Changed in 2025 

Delving into all the “big, beautiful” changes, let us talk about the major ones that will directly impact your nonprofit’s tax situation this year. 

Tip #1: Leverage the New Charitable Deduction Rules  

Starting in 2025, your donors can claim up to $1,000 ($2,000 for married couples) in charitable deductions even when taking the standard deduction. This opens doors to new donor segments who previously couldn't benefit from charitable giving tax breaks. 

Action step: Update your donor communications to highlight this new benefit. Create simple one-page guides explaining how the new deduction works. This will open up new donation opportunities as those who previously could not avail tax deductions can now avail benefits. 

Tip #2: Prepare for High-Net-Worth Donor Strategy Shifts 

With top tax rates jumping from 37% to 39.6% and cash donation limits dropping from 60% to 50% of adjusted gross income, major donors are rethinking their giving strategies. This creates both challenges and opportunities. 

Action step: Schedule meaningful conversations with your top 20 donors before December 31 to explore multi-year pledge opportunities and alternative giving vehicles—such as donor-advised funds. These discussions can help donors optimize their tax benefits while sustaining or even increasing their level of support for your organization.

Tip #3: Monitor Endowment Tax Changes Closely 

Even if you're not a large university, the dramatic increase in endowment excise taxes (from 1.4% to up to 8%) signals increased IRS scrutiny of nonprofit asset management across all sectors.

Action step: Review your investment policies and ensure proper documentation of how investment income supports your exempt purposes. This documentation becomes crucial if the IRS expands endowment tax requirements. 

Effective Nonprofit Tax Compliance Tips That Save Time and Money 

You need to change your compliance routine. This is not something that only needs your attention once a year. 

Tip #4: Implement Monthly Compliance Checkpoints  

You need to include compliance into your monthly routine, catching issues early when they're easy and inexpensive to fix. 

Create a monthly compliance checklist: 

Tip #5: Set Up Automated UBIT Monitoring 

Unrelated Business Income Tax catches many nonprofits off guard. With federal rates at 21% plus state taxes, UBIT can create significant unexpected tax bills. 

Action step: Create quarterly UBIT review meetings. Look specifically for: 

If you expect to owe $500 or more in UBIT for the year, you must make quarterly estimated payments to avoid penalties. 

Tip #6: Master the Public Support Test Before You Need It 

Most nonprofits are public charities. But you must either pass the one-third support test or the facts-and-circumstances test to maintain your tax-exempt status. This means that the IRS mandates you to showcase governmental grants or public support for your mission over a period of 5 years. If your organization does not showcase 33.33% of their funding through donors, IRS may retract the exempt status. 

Here is something that many nonprofit leaders miss – the public support test is all about donor relationship management. You need to curate donor diversification strategies before the test period ends. It takes time to cultivate new relationships, hence relying on a few angel donors is not an option. 

Organizations that fail the public support test get reclassified as private foundations, facing additional restrictions and taxes. 

Action step: Track your public support percentage monthly, not annually. If you're approaching the threshold, implement donor diversification strategies immediately. Waiting until after you fail the test severely limits your options. 

Tip #7: Bulletproof Your Employment Tax Compliance 

You need to maintain a robust employment tax compliance procedure to avoid nonprofit tax penalties. These penalties are severe, immediate, and can create personal liability for responsible parties. The IRS doesn't negotiate on these requirements. 

Top employment tax compliance tips for nonprofits: 

Advanced IRS Form 990 Filing Tips for Maximum Efficiency 

Many nonprofits file the wrong form, creating compliance problems or missing strategic opportunities. If you are also stuck in the form selection maze, this is the top tax tip for your nonprofit in 2025. 

Tip #8: Choose the Right Form Based on Strategy, Not Just Size  

Here are the form selection tips: 

Tip #9: Turn Form 990 Preparation into Strategic Planning 

Here is a useful tip for you - use Form 990 preparation as an annual organizational assessment opportunity, not just a compliance burden. 

Strategic IRS Form 990 filing tips: 

Tip #10: Optimize Your Program Service Descriptions 

One of the most common IRS Form 990 filing tips you will get is to tell your story. 

The program service accomplishments section is your primary opportunity to tell your story to both the IRS and the public.  

Write compelling program descriptions: 

Proven Tips for Avoiding Nonprofit Tax Penalties 

In this nonprofit tax compliance guide, you will gain more insight into documentation, deadlines, and tracking.

Tip #11: Create a Compliance Calendar That Actually Works 

The simplest tip that prevents most penalties: track every deadline throughout the year, not just the big ones. 

Essential dates for your compliance calendar: 

Tip #12: Document Everything in Real Time 

Most penalty situations stem from poor documentation. Build documentation into your regular processes instead of trying to recreate it later. 

Document these items immediately: 

Tip #13: Implement the Three-Signature Rule 

For any transaction over $5,000, mandate a three-signature requirement: the person initiating, the person approving, and the person with budget authority. This simple rule prevents most compliance problems before they occur. 

Tip #14: Use Technology to Eliminate Human Error 

Manual processes create penalty risks. You must automate routine compliance tasks to eliminate mistakes. 

Technology tips to avoid nonprofit compliance penalties: 

Strategic Tax Planning Tips for Long-Term Success 

Organizations overly dependent on contributions face different tax planning challenges than those with diverse revenue streams. Smart tax planning considers your entire revenue portfolio. 

Tip #15: Build Revenue Diversification into Your Tax Strategy 

Here are certain revenue diversification tips: 

Tip #16: Time Large Transactions Strategically 

The timing of major gifts, equipment purchases, or program launches can significantly impact your tax obligations and filing requirements. 

Strategic timing considerations: 

Tip #17: Plan for Succession in Tax Compliance 

Staff turnover can create dangerous gaps in tax compliance knowledge. Build systems that survive personnel changes. 

Succession planning tips: 

Building Your Year-Round Compliance System 

Monthly closes catch problems early when they're easy and inexpensive to fix. Organizations that only close annually often discover major issues during audit or tax preparation. 

Tip #18: Establish Monthly Financial Closing Procedures  

Here is your monthly closing checklist: 

Tip #19: Create Board-Level Tax Evaluation 

Your board has fiduciary responsibility for tax compliance, but many boards don't receive the information needed to fulfill this duty effectively. 

Board evaluation tips: 

Tip #20: Invest in Professional Relationships  

Being a nonprofit owner, you realize the importance of resources. When your team is caught up in administrative tasks, program management, as well as accounting, you are looking at burnout. In your field, where kindness rules, you cannot afford to lose your volunteers to overburden. 

This is where outsourced accounting for nonprofits comes to play. You can associate with a reliable accounting partner without the hassle of recruitment, office space, or training. You need to cultivate relationships with outsourcing firms and maintain a transparent communication channel. 

Professional relationship tips: 

Technology Tips for Modern Nonprofit Tax Management 

Modern nonprofits have access to technology solutions that can dramatically improve compliance outcomes while reducing costs and administrative burden. Strategic implementation of appropriate tools creates sustainable competitive advantages. 

Tip #21: Choose Accounting Software Designed for Nonprofits 

Nonprofit-specific accounting systems provide crucial advantages over general business software. Fund accounting, restricted gift tracking, and IRS Form 990 preparation require specialized features. 

Software selection tips: 

Tip #22: Implement Digital Document Management 

Paper-based systems create risks during audits, examinations, and daily operations. Digital systems improve accessibility while ensuring proper retention and security. 

Document management tips: 

Advanced Strategies for Sophisticated Organizations 

The nonprofit tax environment continues evolving. Organizations that prepare for change adapt more effectively and capitalize on new opportunities. 

Tip #23: Develop Scenario Planning for Tax Law Changes 

Employ efficient scenario planning where you are ready with strategies to avoid nonprofit tax penalties. 

Scenario planning tips: 

Tip #24: Use Tax Planning as a Fundraising Tool 

Most donors appreciate organizations that understand tax implications and can discuss giving strategies that maximize the mission impact. The newest generation of donors – Gen Z – are keen on transparency. They prefer organizations with values aligned to their own, maintaining transparency, embracing ethics, and maintaining a proper trail of every dollar received. 

Fundraising integration tips: 

Tip #25: Optimize Your Organizational Structure for Tax Efficiency 

As organizations grow, their optimal tax structure may evolve. Regularly review whether your current structure serves your mission and compliance needs effectively. 

Structure optimization tips: 

Your Implementation Action Plan 

Transform these nonprofit tax compliance tips into reality with a systematic implementation approach: 

Week 1-2: Assessment and Planning 

Week 3-4: Quick Wins 

Month 2-3: System Building 

Month 4-6: Advanced Strategy 

Your Path Forward for Nonprofit Tax Compliance 

Implementing these tax tips for nonprofits in 2025 is not an easy task. You need to take it slow but leverage the competitive advantages as well. The key is to set realistic timelines and clear accountability.