Filing annual tax returns can be daunting for nonprofits lacking expertise navigating complex IRS forms.
Master nonprofit tax compliance and confidently submit complete, accurate 990 filings with this comprehensive guide.
You'll get step-by-step instructions decoding the form, detailing every section, understanding due dates, reporting compensation, and finalizing error-free submissions.
Introduction to Form 990: Navigating Nonprofit Tax Compliance
A brief overview of what Form 990 is, who must file it, and key information nonprofits need to know about this annual IRS filing requirement.
Understanding the Importance of IRS Form 990 for Tax Exempt Organizations
Form 990 is an annual information return that certain federally tax-exempt organizations must file with the IRS. It provides details on the organization's programs, finances, governance, compliance activities, and compensation.
Filing Form 990 is important for several reasons:
- It fulfills the annual IRS filing requirement for tax exempt nonprofits with over $50,000 in gross receipts. Not filing can lead to penalties.
- It gives the public transparency into the organization's operations, financials, activities, and leadership.
- It demonstrates continued compliance with tax exemption requirements.
- It shares information required by state regulators, grantmakers, donors, and other stakeholders.
Overall, Form 990 aims to promote nonprofit accountability, transparency, and compliance.
Identifying Organizations Required to File IRS 990 Filings for Non-Profits
The following types of organizations generally must file some variation of Form 990 if their annual gross receipts are normally above $50,000:
- 501(c)(3) public charities
- 501(c)(4) social welfare organizations
- 501(c)(5) labor unions
- 501(c)(6) trade associations
- 501(c)(7) social clubs
There are three main versions of Form 990 for larger nonprofits to file:
- Form 990 - The standard version
- Form 990-EZ - A simplified version for small organizations
- Form 990-N - An annual e-postcard filing for very small groups
So in summary, if your nonprofit normally exceeds $50,000 in annual gross receipts over a 3-year period, you must file an annual Form 990 series return. Check the specific thresholds to determine which version applies.
How do I fill out a 990 tax form?
Filling out Form 990 can seem daunting, but breaking it down step-by-step makes the process more manageable. Here are some tips:
Gather Necessary Information
Before you begin, collect the following documents and information:
- Your organization's financial statements and records for the tax year
- A list of board members, key employees, contractors, donations received, programs run, etc.
- Your organization's mission statement, activities, and accomplishments
Review the Instructions
The IRS instructions walk through each section of the form. Keep them handy as you fill it out. Pay attention to:
- Parts that apply to your type of nonprofit
- Definitions of key terms like "key employee"
- Places you need to provide additional statements
Start with the Easy Sections
Begin by filling in the basic information like your organization's name, address, EIN, tax year, etc. This helps you ease into the more complex sections.
Take Your Time
Allot several hours over multiple days to carefully complete Form 990. Rushing can lead to mistakes. Review each section thoroughly before moving on.
Double Check Before Submitting
Proofread the entire form when finished and have someone else review it too. Verify all information is correct and nothing is missing. This prevents issues if the form is selected for audit.
With preparation and patience, nonprofits can successfully submit their annual Form 990. Reach out to an accountant or the IRS with any questions.
What are the most important parts of Form 990?
When reviewing a Form 990, there are a few key sections to pay close attention to in order to understand an organization's operations, governance, and finances:
Line 1-6: Basic Information
These lines provide the organization's current tax year, legal name, mailing address, website, tax-exempt status, and any name changes. This identifies the basic details about the filing organization.
Line 7-8: Mission Statement & Primary Exempt Purpose
An organization's mission statement and primary exempt purpose are important for context. This helps determine if the organization's activities align with their defined tax-exempt purpose.
Part VII: Compensation of Officers, Directors, Key Employees
This section reports compensation and benefits paid to key individuals in the organization. It is important for transparency into potential conflicts of interest.
Part VIII: Statement of Revenue
This breakdown of revenue sources shows where the organization's funding comes from, such as contributions, program services, or investments.
Part IX: Statement of Functional Expenses
This view of spending divided across program services, management, fundraising, and other categories provides insight into how donations or grants are utilized.
Part X: Balance Sheet
The balance sheet summarizes assets, liabilities, and net assets/fund balances. It indicates financial health and stability.
Part XI: Reconciliation of Net Assets
This reconciliation from one year's net assets to the next checks that revenue and expenses tie out correctly.
Reviewing these key sections provides a snapshot of an organization's Form 990 filing to understand their operations, governance, and finances. The full filing offers further details.
What are management and general expenses on Form 990?
The Form 990 instructions define management and general expenses (M&G) as costs related to the overall operations and oversight of the nonprofit organization, rather than expenses directly tied to programs or fundraising.
Some examples of M&G expenses, according to the instructions, include:
- Salaries and wages of top management like the Executive Director or CEO
- Accounting fees
- Legal fees
- Office management
- General recordkeeping
- Board meetings and oversight
- Other administrative costs
Essentially, any expenses that keep the "lights on" and allow the nonprofit to function on a day-to-day basis can count as M&G. These are critical expenditures but do not directly advance the nonprofit's tax-exempt purpose.
When filing Form 990, nonprofits must break out M&G separately from program and fundraising costs. This allows the IRS and public to analyze what percentage of the nonprofit's total budget goes toward administrative overhead rather than mission-related activities.
Keeping M&G costs reasonable as a percentage of total expenses is an important factor in demonstrating financial efficiency and accountability on the Form 990. Nonprofits should take care to track and allocate shared costs appropriately between programs, fundraising, and management when completing the return.
What is a program service accomplishment?
Program service accomplishments refer to the activities conducted by a nonprofit organization that serve its tax-exempt purpose. These are key activities that a nonprofit engages in to fulfill its mission.
Some examples of program service accomplishments for a nonprofit include:
- Providing food, shelter, or other direct services to those in need
- Offering educational programs and materials to the community
- Conducting medical research to find cures for diseases
- Protecting the environment through conservation efforts
- Promoting the arts and cultural events
Nonprofits must report their program service accomplishments on Form 990 to show the IRS how they furthered their tax-exempt purpose over the past year. This demonstrates to the IRS that the nonprofit is operating to benefit the public good rather than serving private interests.
When detailing program service accomplishments on Form 990, nonprofits should quantify their activities with numbers whenever possible. For example, reporting the number of meals provided, students taught, medical trials conducted, acres of land preserved, etc. This shows the scope of the nonprofit's work.
Nonprofits should also describe the overall objective and achievements of each program service, not just the activities. Explaining the goals, results and community impact demonstrates how the nonprofit benefited society.
Properly reporting program service accomplishments is key for nonprofits to show accountability, transparency and fulfill their mission. This section of Form 990 allows nonprofits to showcase their service and value to funders, donors and the public.
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Decoding the Form 990 Instructions for Nonprofit Organizations
A high-level overview of the key sections nonprofits need to focus on when preparing their annual Form 990 filings.
Part I - Summary and Overview of the Organization's Mission
Part I of Form 990 provides a high-level summary of the nonprofit organization's mission, activities, governance, and key financial information. Some key items to focus on in this section include:
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Mission statement: Summarize the organization's mission and purpose in a clear, concise manner. This sets the stage for the rest of the return.
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Activities and accomplishments: Provide an overview of the major programs and activities the nonprofit conducted over the past year in support of its mission. Quantify impact and results where possible.
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Governing body: Report the number of voting members on the governing body (board of directors), their names, compensation, and any business or family relationships between them.
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Revenue and expenses: Provide summary financial data including total revenue, program service revenue, contributions, grants, total expenses, total assets, and total liabilities. Accuracy is essential as this provides the big picture.
Properly setting up Part I frames the overall context for the in-depth reporting that follows in Parts III-XII.
Part II - Signature Block and Declaration of Filing Guidelines
Part II requires signatures from key leaders in the organization certifying:
- The return's contents are true, correct, and complete
- Required schedules and attachments are included
- The signers have reviewed the full return
Typical signers include the organization's CEO, CFO, COO, Executive Director, and Board President.
By signing, they attest:
- They've examined the return contents
- Made reasonable attempts to obtain all information required to file a complete and accurate return
- The information contained is true, correct, and complete to the best of their knowledge
This establishes personal accountability. Signers who make false declarations may face IRS penalties.
Part III - Detailing Program Service Accomplishments and Impact
Part III is the section where nonprofits describe their major program service accomplishments during the tax year.
For each major program or activity, include details on:
- Program name and description
- Population served
- Objectives and effectiveness measures
- Overall program impact and results
Quantifying metrics like clients served, services delivered, outcomes achieved strengthens reporting. Part III tells the story of the organization's mission in action.
Properly tracking program data throughout the year facilitates accurate end-of-year reporting. Auditors carefully review this section.
The Comprehensive Checklist for Filing Form 990
A walkthrough of the step-by-step process nonprofits should follow each year when preparing and filing their Form 990 submissions.
Selecting the Correct IRS Form 990 PDF for Your Nonprofit
The first step is figuring out specifically which variation of Form 990 (e.g. 990, 990-EZ, or 990-N) your organization needs to submit based on annual gross receipts and other factors.
- Review the gross receipts and asset thresholds to determine if you qualify to file Form 990-EZ or 990-N
- Form 990 must be filed by organizations with over $200,000 in annual gross receipts or over $500,000 in assets
- Form 990-EZ has eligibility thresholds of less than $200,000 in annual gross receipts and less than $500,000 in assets
- Form 990-N is only for organizations with normally $50,000 or less in annual gross receipts
Consult the IRS guidelines to verify which version applies to your nonprofit.
Analyzing the Previous Year's Form 990 to Inform the Current Filing
Get last year's Form 990 filing and use it as the starting point for this year's return. Identify what needs changing based on any shifts in your nonprofit's finances, activities, governance over the past 12 months.
- Review the prior year return line-by-line to determine what needs updating
- Note any changes in leadership titles, compensation, organizational structure
- Compare revenue and expense totals year-over-year
- Update contributor and donation details based on current records
- Revise descriptions of current year program services and accomplishments
Leveraging the previous Form 990 facilitates an accurate and efficient filing process.
Compiling Essential Information for a Complete Form 990 Submission
Collect the necessary financial statements, governing documents, compensation details, donor contribution records, and all other reporting data needed to fully complete Form 990 before beginning.
- Financial statements - income statement, balance sheet, statement of functional expenses
- Governing documents - articles of incorporation, bylaws, IRS determination letter
- Board and management details - names, titles, time devoted, compensation
- Contributor records - names, addresses, contribution amounts of major donors
- Program service details - descriptions, expenses, accomplishments
- Additional IRS schedules - as required based on the organization's specifics
Having all required information readily available ensures accurate, complete, and timely Form 990 filing.
Understanding the Form 990 Due Date and Filing Timeline
Form 990 is an annual information return that certain federally tax-exempt organizations must file with the IRS. Understanding the due date and timeline for filing this form is key to maintaining compliance and avoiding penalties.
Determining Your Nonprofit's Filing Deadline Based on Fiscal Year-End
The due date for filing Form 990 depends on the fiscal year-end of your nonprofit organization:
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Calendar year filers (December 31 year-end) must file by May 15th of the following year. For example, if your fiscal year ended on December 31, 2022, your Form 990 is due May 15, 2023.
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Non-calendar year filers must file by the 15th day of the 5th month after the end of their fiscal year. For example, if your year-end is June 30, 2023, your Form 990 is due November 15, 2023.
Be sure to confirm your organization's fiscal year-end and calculate the corresponding due date to avoid late filing penalties.
Extension Requests and Late Filing Consequences
If your organization needs more time to file Form 990, you can request a 6-month extension by submitting Form 8868 by the original due date. An extension provides more time to file, but does not extend the deadline to pay any taxes due.
Late filing or failure to file Form 990 can result in the following penalties:
- Initial penalty of $20 per day up to a maximum of $10,000 or 5% of gross receipts, whichever is less
- Loss of tax-exempt status if fail to file for 3 consecutive years
Be sure to file on time or request an extension to avoid penalties and maintain your organization's good standing. Keep detailed records and work with a knowledgeable tax professional for guidance on Form 990 requirements.
Reporting Compensation on Form 990 for Key Employees and Independent Contractors
Accurately reporting compensation for key employees, officers, directors, trustees, and independent contractors is an important requirement when filing IRS Form 990. As a nonprofit organization, detailing this information properly helps demonstrate transparency and accountability.
Navigating Compensation Disclosures for Officers, Directors, and Trustees
When completing Part VII of Form 990, you must report compensation and benefits provided to current and former officers, directors, trustees, key employees, and highest compensated employees. This includes:
- Salary, fees, bonuses, and severance payments
- Retirement plan contributions and other deferred compensation
- Nontaxable benefits like health insurance and vehicle allowances
Be sure to break out and itemize amounts rather than reporting a lump sum. Provide additional details on arrangements like expense accounts and housing allowances as required.
Fulfilling Reporting Requirements for the Five Highest Paid Employees
If any employees receive over $100,000 in compensation from your nonprofit for the tax year, you must list the five highest paid in Part VII. Report their names, titles, average weekly hours worked, and detailed compensation numbers.
Independent contractors are not included in determining the five highest paid employees. They are reported separately.
Detailing Payments to Independent Contractors and Service Providers
For independent contractors paid over $100,000 during the tax year, you must complete a separate table in Part VII. List names, addresses, service descriptions, and total compensation.
Common examples include accountants, lawyers, consultants, investment advisors, and professional fundraisers. But any independent contractor providing services must be reported when exceeding the $100,000 threshold.
Carefully reviewing these reporting requirements helps ensure your Form 990 compensation disclosures are complete and accurate. Let me know if you need any clarification or have additional questions!
Conclusion: Mastering Form 990 for Nonprofit Tax Return Excellence
Recap of Form 990 Filing Essentials for Nonprofit Organizations
Filing Form 990 accurately and on time is critical for nonprofit organizations to maintain their tax-exempt status. This article has covered key information to guide nonprofits through the process, including:
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Due Dates: Form 990 is generally due on the 15th day of the 5th month after the end of your fiscal year. Mark your calendar and file on time.
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Reporting Thresholds: Organizations with gross receipts normally $50,000 or less can file Form 990-N. Review the thresholds to file the correct 990 version.
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Compensation Reporting: Track and report compensation for current and former officers, directors, key employees, and highest compensated employees. This is closely scrutinized.
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Public Disclosure: Form 990 must be made available for public review upon request. Be prepared to share.
Following these essential filing, reporting, and disclosure requirements will help your nonprofit maintain compliant operations.
Final Checklist and Review Process Before Submission
Before submitting Form 990, rigorously review your filing using this checklist:
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Verify officer, employee, and contractor compensation is accurately reported. Cross check your supporting documents.
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Review all related party disclosures. Check for accuracy and completeness.
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Confirm all questions related to governance, policies, and procedures are appropriately answered.
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Validate that all supplementary attachments and schedules are included as required.
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Check totals, perform calculations, and validate all financial data for accuracy. Resolve any discrepancies.
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Review the entire return for clarity, consistency, and completeness. Perform quality assurance.
Following this comprehensive review will help confirm your Form 990 is error-free before submitting it to the IRS by the due date. Maintaining diligent compliance practices is key for nonprofit tax exemption.
