Form 990 Filing: Your Essential Guide to Nonprofit Taxes
Not many people look forward to tax season. While individuals and companies need to pay taxes each year using complicated forms, nonprofits usually don’t. Because of their 501(c)(3) status, nonprofit organizations are exempt from these payments each year.
However, this doesn’t mean tax season is easy for these organizations. Nonprofits still need to file a Form 990 in order to maintain their exempt status.
The Form 990 is where organizations like yours record relevant financial information for the IRS. The IRS uses this information to ensure the nonprofit is working properly towards its mission and merits the continued tax-exempt status.
Because tax forms are often regarded with an air of confusion, we’ll start this article by addressing some of the frequently asked questions that nonprofits often have about their File 990 filing.
Form 990 FAQs
What is the Form 990?
The Form 990 is the tax form that tax-exempt organizations fill out each year to remain compliant with the requirements of the IRS. 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 reliable and honest.
Which form does my nonprofit file?
There are a few different types of 990s available that nonprofits can file according to their financial standing. Very small nonprofits whose gross receipts is less than $50,000 can file the 990N or the 990 postcard. Slightly larger organizations whose gross receipts are less than $200,000 will generally file a 990EZ. Finally, larger organizations with gross receipts greater than $200,000 file the standard Form 990. We’ll cover this more in-depth later.
When are nonprofit tax forms due?
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.
Who has access to my nonprofit’s 990?
When you send your completed 990 to the IRS, they’re not the only one who will have access to the documents. All Form 990s are publicly available documents, meaning anyone can read the data. Some companies, like Guidestar, use these documents to provide donors with additional information about the nonprofits they’re interested in supporting.
Do I also file tax forms with the state?
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. This page on the IRS website links out to the requirements necessary for each state so that your organization can research your specific tax form requirements.
Nonprofit taxes may seem confusing at first, but after you’ve learned about the rules, regulations, and best practices surrounding them, you’ll find them much more manageable.
In the rest of this article, we’ll cover the in-depth information that organizations need to know about their tax seasons. You can read with us from the beginning or use the navigation below to jump to the section that most interests you:
- Why You File Nonprofit Taxes
- When to File a Form 990
- Which Form 990 to File
- Your Form 990 and Nonprofit Audits
- How to File Nonprofit Taxes
Let’s get started!
1. Why You File Nonprofit Taxes
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 at first, 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 annual Form 990 in 2016.
While we wish and 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.
- There are penalties associated with failing to file. Finally, if your organization doesn’t file your tax forms on time, there are immediate penalties that you’ll experience. Some of the penalties include:
- The loss of your tax-exempt status
- The loss of your ability to accept tax-deductible contributions
- Fees that can range from $20 to $100 per day that forms are late
- Loss of donor confidence
As you can see, accurately and effectively filing your nonprofit taxes is essential to effective financial planning. In order to make sure your forms are consistently accurate from year to year, 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.
2. When to File a Form 990
As mentioned previously, your nonprofit needs to file your Form 990 annually. For most nonprofits, the Form 990 is due on May 15th because this is the 15th day of the 5th month after the calendar year ends.
However, if your organization doesn’t follow the calendar fiscal year, you may find that your tax season also changes accordingly. While it’s usually due on the 15th day of the 5th month after you conclude your fiscal year, there are exceptions to this rule. These exceptions come in the form of deadline extensions and COVID-19 updates.
Form 990 Deadline Extensions
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 for filing to November 15th for the majority of nonprofit organizations.
During 2020, in the midst of the COVID-19 global pandemic, the IRS recognized that nonprofits might have more difficulty than usual getting their tax forms in on time. Therefore, they decided to extend the deadline for organizations filing federal Form 990s.
Now, for nonprofits who follow the calendar fiscal year, they can file their Form 990s up until the new deadline of July 15th.
Even with the extensions in place, we recommend that your nonprofit be proactive and prevent late filings as much as possible.
3. Know Which Form 990 to File
There are several types of Form 990s that nonprofits can file each year. Smaller nonprofits tend to file smaller sized forms while larger nonprofits file the standard Form 990. To understand which tax forms your nonprofit should file, you’ll need to know your annual gross receipts and total assets of the organization.
The chart below provides a summary of which Form 900 to file based on the gross receipts and total assets of your nonprofit (it also features Jitasa’s price for help with such forms!):
- 990N (epostcard) - You may file this form if your gross receipts are normally under $50,000. The 990N is an 8-question online form that allows nonprofits to quickly record their financial data for the IRS. It asks about your organization’s EIN, tax year, legal name and address, name and address of the principal officer, URL, and confirmation of tax receipts under $50,000.
- 990EZ - Your nonprofit may file this form if your gross receipts are under $200,000 and your total assets are under $500,000. The 990EZ is a 4-page form that requires your organization to collect data from your balance sheets, record on your program projects and accomplishments, itemize your grant information, and more.
- 990 Full - Your organization may file this form if your gross receipts are over $200,000 or your total assets are over $500,000. When filing this tax form, you’ll need to summarize your mission and purpose, your data from your financial records, and your accomplishments as an organization for the 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, your trustees and officers, grants, and financial activities.
If your organization needs assistance filing your nonprofit tax returns, we recommend that you talk with an accountant who can help file the forms. Jitasa helps thousands of nonprofits file their tax returns every year. They’ve seen every tax situation that you can think of and can help your organization make sure everything is correct and on time.
4. Your Form 990 and Nonprofit Audits
If your nonprofit is planning to conduct a full 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.
When you prepare for an audit, we recommend taking the following steps in advance:
- Before the end of your fiscal year - select an auditor. Reach out to your contacts for referrals on the best auditors that you can choose. Do so before your fiscal year ends to ensure your audit date won’t be pushed back into the year. Then, you should complete an RFP and come up with questions to ask your potential firm, such as their amount of business recently, their prospective timelines, and their fees structure.
- Next 2 - 4 weeks - prepare for the audit. Collect the documentation you’ll need for the audit, such as your year-end reconciliation and bank statements, a list of your fixed assets, your fiscal year’s general ledger, financial management policies, etc.
- Final 2 - 4 weeks - complete the audit. The audit firm 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 that you can to help speed up the process.
- Immediately after the audit - incorporate recommendations. You’ll also need to record the changes made in your financial processes when you file your Form 990.
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 audit documentation also helps your organization pull together everything that you would need for both the audit process and to file the organization’s taxes.
If your nonprofit outsources your bookkeeping and accounting management, both financial audits and filing tax forms are likely to go over very smoothly! Because the organization you’re working with, like Jitasa, works with many different nonprofits and has undergone so many different financial situations and audits already, they’re well-versed in the processes and procedures that need to occur. This means auditing can occur less frequently and more quickly than organizations that do it all on their own.
5. 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 taxes 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 trained or well-versed in the tax system.
If you do decide to go at it alone, be sure you’re aware of the various tax changes going on in the news. For instance, the COVID-19 tax extensions were necessary to know when filing during 2020. Recently, there was another update to the nonprofit tax legislation as a part of the Taxpayer First Act. This Act required that all nonprofit organizations file their 990s online rather than on paper by the year 2021.
Keeping an eye on the updates while also trying to manage all of the key information can be tough, so it’s helpful to have a trained professional on your side.
Hiring an Accountant
Hiring an accountant to help file your nonprofit’s taxes each year is the best way to make sure all documentation is collected and analyzed properly to ensure accurate and correct tax forms.
When you look for an accountant to help you file your nonprofit taxes, be sure to look for a firm that:
- Has 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.
- Works with similar-sized organizations. Consider the past clients that the firm has worked with. Are they comparable to yours in type? Size? And experience? If so, that firm will have ample experience to help you with your organization’s forms.
- Comes highly recommended. Talk to others about their experience with the firm you’re considering. Make sure others have had a good experience before hiring them to help your nonprofit.
We may be a little biased, but we recommend Jitasa as the best accounting firm to help your nonprofit with your taxes. They’ve worked with organizations of all sizes and types, meaning they have experience with many different financial situations.
You can learn more about Jitasa’s tax services, here. Request a quote and discuss the options with their well-qualified team members.
Filing nonprofit taxes may seem confusing or difficult at first, but armed with the right information and the right tools, your nonprofit will be on the right track. This article is just the beginning. Talk over your options with trained accountants at Jitasa to see what they can do to help your organization take on tax season.
If you’re looking for more information about your nonprofit’s financial options, check out these resources:
- 990 and State Tax Filing Services. Jitasa can help your nonprofit with your federal and state tax forms each year. Learn more about their flat-rate services.
- Working with a Nonprofit Accountant: What to Expect. Are you considering working with an outsourced accountant? Read this guide to make sure your expectations are in check.
- CARES Act for Nonprofits: The Essential Guide. The federal government is helping nonprofits during the tough economic times resulting from COVID-19. Learn more about how!