{"id":4863,"date":"2021-08-16T12:41:43","date_gmt":"2021-08-16T17:41:43","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/reporting-nonprofit-operating-expenses.html"},"modified":"2025-10-21T23:43:00","modified_gmt":"2025-10-22T04:43:00","slug":"reporting-nonprofit-operating-expenses","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/reporting-nonprofit-operating-expenses.html","title":{"rendered":"Reporting Nonprofit Operating Expenses"},"content":{"rendered":"\n
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Reporting Nonprofit Operating Expenses<\/h1>\n\n
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\n By J.P. Finet, J.D.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Nonprofits<\/span> must report operating expenses<\/span> annually through the IRS<\/span> Form 990<\/span> informational return and a detailed Statement of <\/span>Functional Expenses<\/span>. These operating expenses<\/span> include costs for day-to-day operations such as salaries, rent, utilities, and fundraising<\/span> costs<\/span>.<\/p>\n\n <\/div>\n\n\n\n

Most nonprofit<\/span> organizations<\/span> use much of their income or funding to further their organization\u2019s mission<\/span>, but many must also spend money on their day-to-day operations.<\/p>\n

The funds a tax-exempt nonprofit<\/span><\/a> spends on employee salaries, rent, transportation, and fundraising<\/span> costs<\/span> are known as “operating expenses<\/span>,” or “overhead costs<\/span>.” They must be reported annually along with other information. Nonprofit<\/span> organizations<\/span> must do this so donors, the public, and the IRS<\/span> can track nonprofit<\/span> spending.<\/p>\n

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Statement of <\/span>Functional Expenses<\/span><\/strong><\/h2>\n

A nonprofit<\/span>\u2019s statement of <\/span>functional expenses<\/span> tracks costs by functional category<\/span>. The Financial Accounting Standards Board guidelines state that all U.S. nonprofits<\/span><\/a> must report their costs based on their classification as functional and natural expenses.<\/p>\n

A nonprofit<\/span>\u2019s\u00a0functional classifications<\/strong>\u00a0are usually broken down into:<\/p>\n