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4 Best Practices For Staying Tax-Exempt as a Nonprofit

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A guest post by Mathew Tooker of  File990

Receiving tax-exempt status is an essential part of getting your 501(c)(3) nonprofit organization off the ground. However, retaining that status requires an annual filing process to ensure your organization continues to spend its funding responsibly.

At File 990, we’re passionate about nonprofit taxes and equipping organizations with the tools they need to streamline basic accounting and tax processes. We also know that small to mid-sized nonprofits and community organizations often don’t always have dedicated tax professionals on staff. Yet your mission shouldn’t suffer for it!

In this guide, we’ll share the most critical information you need to know, including the foundations of IRS Form 990 and our tried-and-true tips for staying tax-exempt year over year. Let’s get started!

What is IRS Form 990?

IRS Form 990 is an annual tax form that is required of most nonprofit organizations. What’s the purpose of this form? To keep your organization tax-exempt and retaining your 501(c)(3) status.

When you file your 990, you provide key information about your nonprofit finances, including a summary of your activities and programming throughout the year, an overview of your governance structure, and a basic look at your expenses and revenue. This way, the IRS can look into your organization and ensure that your funds (including grants and charitable donations) are properly handled. Without it, your nonprofit risks substantial fines and, eventually, may lose your tax exemption.

However, completing your yearly 990 can do even more for your organization than keep your team up to IRS standards—it can function as a marketing tool for attracting and retaining generous donors. Upon completion, your Form 990 is publicly available, meaning supporters and prospects can have a look at your finances as well. When they see the good work your organization is doing as it is funded by generous gifts, they’ll be more inclined to give.

Tips for Retaining Tax-Exempt Status

Now that you understand the purpose of Form 990 and why the IRS requires you to file every year, let’s jump into our favorite tips for staying tax-exempt as a 501(c)(3) nonprofit.

1. Choose the correct form.

As a 501(c)(3) organization, you know you’ll need to file IRS Form 990. However, did you know that there are multiple versions to choose from?

Here’s a basic comparison between the four most common versions of Form 990 to help you determine the right one for your team:

  • 990: This is the complete version of the form and must be filed by organizations with gross receipts of more than $200,000 per year.
  • 990EZ: The next step down from the full version, the 990EZ is filed nonprofits with gross receipts between $50,000 and $200,000 per year.
  • 990N: This is the most simplified version of the form and is only available to organizations with gross receipts of less than $50,000 per year.
  • 990PF: The “PF” in this form stands for private foundation. As such, this form is filed by all 501(c)(3) private foundations regardless of financial status.

If you run a small to mid-sized nonprofit, you’re probably looking at 990N vs. 990EZ. These abridged versions are shorter and simpler to complete, which is a nice bonus!

Just because you’ve been eligible to complete the e-postcard (or 990N) in the past doesn’t mean you will be forever. If your organization has had a boost in revenue over the last year, it might be time to look into moving up to one of the more comprehensive forms to ensure you’re complying with IRS standards.

2. Submit your form before the deadline.

Once you’ve selected the tax form that is required of your organization, it’s time to determine the date by which you’ll need to submit your documentation. Take a look at our File 990 guide to the Form 990 deadlines that explains how to determine your organization’s deadline as well as consequences for failing to file and how to request an extension. Here are a few key notions to be aware of:

  • Your deadline for submitting your form is the 15th day of the 5th month after your fiscal year ends. For organizations following the calendar year, the deadline is May 15th.
  • You will be fined up to $100 per day that your return is late, with a maximum penalty of $50,000 or 5% of your gross receipts (whichever is less).
  • After three consecutive years of failing to file your 990, your organization will lose its tax-exempt status.

Luckily, you can avoid all of these potential challenges by simply filing your 990 before your deadline. Just figure out your due date, get started well in advance, and be sure you have a reminder set every year!

3. Make sure your document is complete.

Another thing you’ll want to check before sending your tax form (whether physically or digitally) is that you’ve completed everything you need to on the document. If you’re missing vital information on your first submission, you can be penalized as if you hadn’t completed the form in the first place.

To ensure your organization remains tax-exempt, be sure to double-check your submission before sending it in the IRS. According to the IRS website, “The date we receive a complete and accurate return is the date we consider your return filed.”

4. Leverage low-cost filing software.

One significant trend we’re seeing more of in the nonprofit space is organizations using online filing software rather than investing in a dedicated accountant. Especially for smaller organizations (with gross receipts under $200,000 per year and are eligible for the 990N or 990EZ), filing your annual tax return with the help of a dedicated e-filer is completely attainable.

Plus, the right software provider can help make sure you follow the first three tips as well. By ensuring you fill out your form completely before submitting it, offering guidance on selecting the form your organization needs, and sending automated reminders as your deadline approaches each year, a nonprofit tax filing software can help save your organization time and money that can be reinvested in your cause. Not to mention, your e-filer can even save relevant information year over year, making the re-filing process simpler than ever.

All in all, filing Form 990 is one of the most important things you can do as a nonprofit each year—both for IRS requirements and for ensuring complete transparency with your donors.

Mathew Tooker Headshot Mathew’s expertise is in sales forecasting, goal setting, client growth initiatives and business development and analytics. When he is not laser focused on moving organizations forward, you can find him spending time with his wife, Lauren, and two dogs, Reagan and Teddy, running marathons and watching the Atlanta Braves and Auburn sports.

Fundraising Tuesday: How Silent Auctions Get The Word Out for Your Nonprofit

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A guest post by Jeff Porter of Handbid

Nonprofit trends have changed dramatically in recent years. A few event types consistently prove to be successful for earning donations and long-term support. Silent auctions are particularly effective for getting the word out about your cause to your audience. This includes your current supporters, new donors, and potential business partners.

Silent auctions have several moving parts, making them more complicated than other fundraisers. With the right auction software, auctions can reach supporters in ways other fundraisers often struggle to do. After all, few other fundraisers offer donors something in exchange for their contributions.

To show how effective auctions are, this article will cover three ways they can help your nonprofit:

  1. Engage donors in a memorable event.
  2. Attract new audiences.
  3. Create connections with local businesses.

Engage donors in a memorable event.

Browsing auction items, bidding, and winning a prize is outright fun for your donors. At the end of the night, many of your guests will go home with a physical reminder of your event. Supporters who talk about their prizes with their friends and family will likely mention where they won them.

Handbid’s silent auction guide recommends procuring prizes that are experiences. This could include classes, vacations, or small day-out prizes like a massage or spa trip. While these prizes aren’t physical reminders, supporters will need to redeem them later. This means the auction they won them from will stay on their minds.

The only catch for creating a memorable experience is intertwining your nonprofit with your auction event. Some supporters may share with friends and family that they had a good time. Unfortunately, they might not remember what cause their bids supported. You can get ahead of this problem by educating supporters on your mission through your outreach and the event itself. This applies to announcements, printed handouts, and thank you emails.

Attract new audiences.

Silent auctions give supporters a new reason to donate. Unique auction items might attract supporters who hadn’t considered giving to your cause. Silent auctions are also super flexible in how they can be run. Their format allows for in-person, online, and hybrid events, which all can attract new supporters:

  • In-person auctions appeal to local community members who live close enough to attend. At in-person auctions, you can solidify your connections with long-term local supporters. Don’t forget to also welcome new supporters who have recently moved to your community.
  • Online auctions allow your nonprofit to connect with supporters all across the country. Virtual events have risen in popularity because of their global reach and lack of venue and catering costs. Online auctions can last for several days, so more supporters can discover your auction and cast a bid.
  • Hybrid auctions engage your local supporters, your remote supporters, and anyone who prefers to attend from home. These events allow supporters to decide how they engage, letting them choose how and when they interact with your nonprofit.

Auctions can help your nonprofit excite both new and current donors by marketing high-value and unique items. The chance of winning something can be as much of a reason to attend as the opportunity to support your cause.

Create connections with local businesses.

Your nonprofit will need to get auction items from somewhere. This makes auctions a great opportunity to reach out to local businesses. Bear in mind that not every connection will lead to a corporate sponsorship. 360MatchPro’s guide to corporate philanthropy points out that many businesses support charitable causes to improve their image and attract new customers. In other words, they have good reason to support your nonprofit—you’ll just need to do a little work to point it out to them.

Contacting businesses is a multi-step process. Not to mention, acquiring a full item catalogue can take months. Here is a breakdown of how your procurement team can start reaching out to businesses:

  • Create a list of potential business sponsors. Your team will need to research local businesses that cater to your audience. Then, create a list of potential partners. Likely candidates are businesses that have supported similar events, are doing well financially, or offer a product or service related to your nonprofit or event. Ideal partners will fit all three of these criteria.
  • Reach out to middle and low-priority businesses. With practice, your team will get better at appealing to businesses. Start with lower priority business partners. Your team can refine their approach without the stress of talking to one of your dream partners.
  • Follow up and thank businesses. After your event, follow up with a sincere thank you. Mailing thank you cards shows your nonprofit’s dedication to your professional relationships. Calling them on the phone after your event to thank them can open the door for future collaborations.

Remember that some businesses will prefer to support your event in different ways. Some might donate items or offer them at reduced prices, while others prefer to make a cash donation. No matter how they give, be sure to tell them thank you.

Jeff Porter of HandbidJeff Porter, Founder & CEO of Handbid, has spent 18 years in the non-profit industry. In 2004 he founded the Prader-Willi Syndrome Association of Colorado where he still resides as board chair.

Jeff learned early on that non-profits desperately needed better and more affordable fundraising solutions.  Leveraging his software background, he built most of the tools his charities used, and in 2011 he launched Handbid at his own fundraising event.  The goal was to improve the guest experience, reduce administration and increase revenue.  Handbid accomplished all of those goals, effectively doubling revenue in its debut. Nine years later, Handbid’s suite of tools has delighted over a half-million guests, generated millions of bids, and helped thousands of charities raise well over $100 million.

Fundraising Tuesday: Making a First Impression

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There’s an old saying: “You never get a second chance to make a good first impression.” Nowhere does that saying apply more than when you write a fundraising appeal letter.

Whether the donor even opens the letter depends on the envelope. Whether they give it a second glance depends on whether or not you get the name right–and what you say in the postscript–and whether you’ve made the letter easy to read.

Now, let’s say they start to read those words you, the writer, thought about so long, and worked and worked to get just right.

If the first sentence of your appeal letter doesn't compel your donor to read on, you may just have wasted your time sending it. Share on X

And that would be a shame! So, what can you do in the very first sentence of your fundraising appeal to spur your potential donor to read the rest, and donate?

First Sentences That Pull Donors In

Here are the first sentences of some fundraising appeals I received recently that made me read the rest of the letter:

It wasn’t Mai’s decision to call the police. (RESPOND, an agency working to end domestic violence)

In a few weeks, a high-priced team of lawyers will ask the Supreme Court to stop you from helping farm workers. (United Farm Workers)

Imagine you are 15 years old and you woke up this morning as your detention center roommate was being rushed to the hospital with a fever, sore throat, and a raspy cough.  (The Sentencing Project)

$15 doesn’t sound like much, I know. It could buy a nice lunch or a few fancy coffees…or it could provide emergency relief, lifesaving medical treatment, clean water and sanitation…right now. (International Medical Corps)

It’s personal. (Community Cooks)

It’s just an “LGBTQ Safe Zone” sticker. Yet, when you put it up in your synagogue, JCC, day school, or other communal space, you just might change the world. (Keshet, for LGBTQ equality in Jewish life)

Maria left an unsafe home and a volatile relationship and found her way to a shelter in Cambridge earlier this year. (Second Chances)

How many times have you seen a homeless woman on the street, and passed by with neither of you any better off? (On the Rise)

How a Great First Sentence Works

If you’re like me, you receive dozens of appeal letters over the course of a year. What was it about these examples that caught my eye and made me want to know more?

  1. Story. The first sentences in the letters from RESPOND and Second Chances put me right into the middle of the action. As a reader, I had to find out what happened next.
  2. Surprise. The International Medical Corps and Keshet spotlighted a small action I could take that could have a dramatic result.
  3. High stakes. The Sentencing Project made me imagine a teenager who could be getting Covid-19, a matter of life and death.
  4. Emotion. Some of these letters frightened me. Some inspired me. Some made me discontent with the way things are now. Some made me smile at the thought of how things could be.
  5. The letter was about me…and someone who needs help.
    • The UFW got me to bristle at the thought of “high-priced lawyers” taking away my right to give.
    • On the Rise made me think about how it would feel to have a genuine relationship with that woman on the street.
    • Community Cooks captured the essence of why most people donate: because it’s personal.

Notice what these first sentences didn’t do

All these first sentences avoided the deadly weaknesses that send so many appeal letters to the recycling bin, unread and unanswered.

They didn’t speak in generalities, but got down to cases.

They didn’t talk about what matters to the organization: the fiscal year coming to an end, or a budget that has to be balanced, for instance. In fact, they didn’t mention the organization at all.

Instead, all of them pinpointed what would matter to me, the donor. They literally put me first.

Two Ways to Make a Good First Impression with Your Next Appeal Letter

When do you write your next fundraising appeal letter? Maybe you’re working on it right now. Here are two things you can do make that first sentence a winner.

Find it in what you’ve already written. Take a look at your current draft. Are the first few sentences (or paragraphs!) humdrum? Did it take you a while to get to the part that’s going to be exciting to the donor? Then you can either move the exciting part ahead of routine part,  up to the first sentence–or just cut the beginning you have now and begin with what the donor will want to hear.

Write the first sentence last. If you’ve got a lot of good material but nothing to make the donor have to read it, put yourself in the mind of the person who’s picking up your letter in the mail. What is there about what you’re saying that you can say simply, briefly, in an exciting way?

Make that the first sentence, before it goes in the mail. You’ll make a good first impression–and more money for your cause.

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