Nonprofit Form 990 Filing: An Essential Tax Guide

Tuesday, March 28, 2023

Tax season is rarely looked forward to. Individuals dread the thought that they may owe the IRS money from the previous year. However, nonprofits don’t need to have this same sense of dread. Nonprofits with a 501(C)(3) status are exempt from paying federal income tax and sometimes even state taxes.

However, this doesn’t mean your nonprofit can sit back and relax during tax season. Nonprofits like yours still need to file a Form 990 each year to maintain their tax-exempt status.

This form isn’t designed to determine the taxes your nonprofit owes to the government, but simply acts as a report to ensure the organization is handling funds properly and isn’t fraudulent. So long as your organization is legitimate and operates with sound financial management strategies, you have nothing to worry about when filing your annual Form 990.

However, these forms are still met with a lot of trepidation. In this guide, we’ll work to alleviate this confusion by answering common questions about your Form 990 and giving an in-depth explanation of these essential forms. Let’s get started!

Nonprofit Form 990 FAQs

What is the nonprofit Form 990?

The nonprofit Form 990 is the tax form that tax-exempt organizations fill out each year to remain compliant with IRS requirements. It’s the IRS’s method of evaluation to make sure your nonprofit is legitimate and that you’re being financially honest. Basically, it’s how the IRS ensures your organization is worthy of maintaining your tax-exempt status.

Does my nonprofit also file state tax returns?

Each state has slightly different tax requirements for nonprofits to complete and remain compliant. For example, in the state of New York, nonprofits are required to file a Form CHAR500. Meanwhile, other states don’t require any additional forms to be filed but ask for a copy of the completed Form 990. The IRS website links out to the requirements necessary for each state so that your organization can research your specific tax form requirements.

Which Form 990 should I file?

There are several versions of the Form 990 offered by the IRS for nonprofits to file. Organizations with less annual revenue tend to file shorter versions of the form, while larger nonprofits are more likely to file the standard Form 990. To understand which tax form your nonprofit should file, you’ll need to know your organization’s annual gross receipts and total assets.

The chart below provides a summary of which Form 900 to file based on the gross receipts and total assets of your nonprofit:

• 990N (e-postcard): You may file this form if your gross receipts are less than $50,000. The 990N is an eight-question online form that allows nonprofits to quickly record their financial data for the IRS. It asks for your organization’s EIN, tax year, legal name and address, name and address of the principal officer, website URL, and a confirmation of tax receipts under $50,000.
• 990EZ: Your nonprofit may file this form if your gross receipts are less than $200,000 and your total assets equal less than $500,000. The 990EZ is a four-page form that requires your organization to collect data from your statement of financial position, record your projects and accomplishments, itemize your grant information, and more.
• 990 Full: Your organization may file the standard 990 if your gross receipts total $200,000 or more, or if your total assets are equal to or greater than $500,000. When filing this 12-page tax form, you’ll need to summarize your mission and purpose, a variety of data from your financial records, and your accomplishments as an organization from the previous year.
• 990PF: All private foundations must file the 990PF, regardless of their financial status. This form requires your organization to report on your foundation’s private assets, trustees and officers, grant monies, and financial activities.

Your nonprofit can save time and resources by ensuring that you’re filing the form that’s the right size for your organization. You can file the standard Form 990 even when you qualify for the EZ, but why would you? That’s simply creating more work for your staff members.

If you’re unsure about which form to file or how to file that form, reach out to a nonprofit accountant. They’ll be able to help you not only determine the correct form, but also file your forms for you! Learn more about how Jitasa can help you file your Form 990 this year.

When is the Form 990 filing deadline?

Your nonprofit tax forms are due on the 15th day of the 5th month after the conclusion of the nonprofit’s fiscal year. For the majority of nonprofits, who operate on the calendar fiscal year, your tax forms are due on May 15th unless you’ve specifically requested an extension.

If for some reason, your nonprofit cannot make the deadline of May 15th (or your organization’s specific deadline) to file your nonprofit taxes, you have the option to extend your time by six months. You can apply for this 990 deadline extension by filing a Form 8868. If approved, this moves the deadline to November 15th for nonprofit organizations using the calendar fiscal year.

It’s recommended that nonprofits planning to conduct a financial audit file for an extension on the 990 deadline. This gives them more time to implement the audit recommendations before filing their tax returns.

What happens if I file my 990 late?

It’s important for nonprofits to get their Form 990s in on time. Not only is it a requirement for your organization (and a weight off your chest to complete), but you can also run into fees and penalties if you file your 990 late. These are the penalties you may encounter:

• If your gross receipts are less than $1,000,000 for the tax year, you’ll be imposed a penalty of $20 per day the return is late. The maximum penalty is either $10,000, or 5% of your organization’s gross receipts, whichever is less.
• If your gross receipts are greater than $1,000,000 for the tax year, you’ll be imposed a penalty of $100 per day the return is late. The maximum penalty, in this case, is $50,000 or 5% of your organization’s gross receipts, whichever is less.

If you fail to file your Form 990 return for three years in a row, you run the risk of your 501(C)(3) status being revoked. If this happens, your organization will need to file the Form 1023 again and pay the fees to re-obtain your 501(C)(3) status.

Who has access to my nonprofit’s Form 990?

When you send your completed 990 to the IRS, they’re not the only entity that will have access to the documents. All Form 990s are publicly available documents, meaning anyone can read the information from your forms. This means a couple of things for your nonprofit:

• First, it means you should be careful not to include sensitive information as a part of your forms. For example, the IRS specifies that you shouldn’t include any Social Security numbers on these forms (which has been a problem for nonprofits in the past) due to concerns of identity theft.
• Next, it means that your organization may decide to go ahead and post your 990 on your website. More than that, you might decide to provide additional information as a part of an annual report to increase transparency among your supporters. This fills in any apparent gaps in financial information and provides additional context for your nonprofit Form 990 information.

Some companies, like Guidestar, use these documents to provide donors with additional information about the nonprofits they’re interested in supporting. Your nonprofit can choose to register with Guidestar to make this information more easily accessible and increase transparency with your supporters.

Why You File the Nonprofit Form 990

Nonprofit tax forms are designed to help ensure organizations are acting honestly and with integrity. Unfortunately, nonprofits have historically been used to cover up fraudulent and devious actions.

Take, for instance, the story of the Key Worldwide Foundation, as explained by Nonprofit Quarterly. This foundation paraded as a nonprofit organization whose noble mission was to “provide education that would normally be unattainable to underprivileged students.” However, as honest as their actions may have seemed on paper, a closer look at their 2016 Form 990 showed that the actions of the organization were actually riddled with fraud.

In their paperwork, the foundation claimed to have been paying $1.9 million to worthy causes, such as a tutoring program in Oakland to help underserved students with their educational initiatives. However, when the Oakland school district was contacted, they claimed to have no knowledge of such programs.

Instead of the noble programming claimed by the Key Worldwide Foundation, it was discovered that their organization was simply a way for wealthy parents to influence the admissions process for their own children.

This fraudulent behavior would’ve gone on much longer if the organization had not been required to file their 2016 annual Form 990.

While we want to believe that all individuals have good intentions and are honest, it’s not always the case. Nonprofits have a valuable advantage of not paying taxes. And, as W.C. Fields once said, “A thing worth having is worth cheating for.” With this benefit available for nonprofits comes people who are willing to cheat the system. The Form 990 is designed to prevent this cheating from occurring and to catch it when it inevitably does happen.

There are also several other reasons that your nonprofit may want to file your tax forms each and every year. These reasons include:

• It holds your organization accountable. Filing taxes each year is a good excuse to review your organization’s financial information holistically on a regular basis.
• It allows for financial transparency. Because Form 990s are public record, nonprofit supporters can gain valuable information when they look up your tax forms. Plus, nonprofits can publish the information as both the 990 and in your annual report to communicate even more openly with supporters.

And, of course, there are the penalties discussed earlier in the article for nonprofits that fail to file their forms.

Accurately and effectively filing your nonprofit taxes is essential to effective financial planning. To make sure your forms are consistently accurate, we recommend working with a nonprofit accountant. Jitasa’s tax services are designed to help nonprofits like yours make sure forms are filled out correctly and filed properly each year.

Your Nonprofit Form 990 and Audits

If your nonprofit is planning to conduct a financial audit, we recommend doing so before completing your Form 990 filing. This is because you’ll need to update your Form 990 with the details of the audit in the financial section of the tax form. For this reason, consider filing for an extension for your Form 990 to ensure you still get it in on time.

Preparing for your audit takes time as much as actually conducting the audit itself. Therefore, start preparing for it early to ensure you finish it in time. We recommend following this approximate timeline:

• Before the end of your fiscal year - Select an auditor. Reach out to your nonprofit accountant or to similar organizations in your area for referrals to their favorite auditors. Do so before your fiscal year ends to ensure your audit date won’t be delayed. Then, narrow your selection and complete an RFP to submit to your top choice firms. Ask questions such as the percentage of their business that comes from nonprofits, their prospective timelines, and their fee structure to make a final selection.
• Next 2 - 4 weeks - Prepare for the audit. Make sure every transaction is recorded from the year’s finances, reconcile your bank accounts, and otherwise make sure everything is ready for the auditor. This is also the time to pull together your statements of activities, financial position, cash flows, and other accounting statements.
• Final 2 - 4 weeks - Complete the audit. Your auditor will conduct the audit for your organization. Be sure to provide them with all of the information they’ll need and assist in any way to speed up the process.
• Immediately after the audit - Incorporate audit recommendations and update your financial processes as necessary.

Even if you’re not technically required to conduct a full audit, they can be incredibly helpful especially when your organization is considering changes to internal controls or other financial processes. Collecting financial documentation for your audit also helps your organization pull together everything that you would need for both the audit process and filing your organization’s taxes.

How to File Nonprofit Taxes

There are two different ways you can go about filing nonprofit taxes. The first is to go through the process of filing your own Form 990, and the second is to hire an accountant who will help your organization file each year.

Filing on Your Own

Filing tax forms on your own is absolutely possible, but many nonprofits find that it’s more trouble than it’s worth. Keeping up with changes in the tax system, collecting and organizing documents, and correctly interpreting confusing tax questions can be difficult for organizations that aren’t specifically trained or well versed in the tax system.

Ever since the Taxpayer First Act passed in 2019, all nonprofit tax forms are required to be filed online rather than as paper copies. This is an important note for nonprofits filing their own taxes as only the 990N was required to be filed online before 2019.

Hiring an Accountant

Hiring an accountant to file your nonprofit Form 990 on your organization’s behalf is the best way to make sure all documentation is collected and analyzed properly each year. You can rest assured your forms are consistently accurate, correct, and filed on time.

But you wouldn’t trust just anyone with your precious financial information. You need to be careful when choosing an accountant to help file your nonprofit tax forms. Look for a firm with:

• A flat-rate pricing model. When additional fees and hidden expenses are included in the price of hiring an accountant to help file your tax returns, you’ll likely end up overpaying.
• Experience working with similar-sized organizations. Consider the past clients that the firm has worked with. Are those clients comparable to yours in type? Size? Experience? If so, that accounting firm will have ample experience and expertise to help you with your organization’s forms.
• Positive reviews and many recommendations. Talk to others, asking for reviews of the firm you’re considering working with. If those reviews are generally positive, you can likely count on a good experience working with them yourself.

We may be a little biased, but we recommend Jitasa as the best accounting firm to help your nonprofit with your taxes. Our experts have worked with organizations of all sizes and types, meaning they have experience with many different financial situations and can meet your organization’s unique needs.

Nonprofit Form 990s may seem confusing at first for many organizations. However, they’re an unavoidable part of being a financially responsible nonprofit organization. Learning about your Form 990 is the first step to a successful tax season. The next step will be actually completing these important forms.

If you’re interested in learning more about taxes and general nonprofit accounting best practices, read more from the Jitasa blog. We recommend the following articles:

• How to Fill Out a W-9 for Nonprofits and When it’s Necessary. Another important tax form is a W-9. Learn more about what this form is used for and when you’d need to request one in this comprehensive guide.
• Form 1099 for Nonprofits: How and Why to Issue One. In the same vein as your W-9, 1099 tax forms need to be issued if your organization contracts work to be done throughout the year. Review the requirements for these forms in this article.
• Nonprofit Audits: A Complete Guide to Financial Auditing. We mentioned the importance of auditing for your nonprofit in this guide. Click through to this guide for an in-depth review of audits and how your organization can use them.
• Nonprofit Risk Management: Complete Guide + Tips for Success. As you review your internal financial controls as a part of reviewing your annual tax returns, you may uncover questions about risk management practices. Learn about risk with this guide.

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