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’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.