Form 990s and more: a quick tax guide for small nonprofits

A significant part of running an effective nonprofit organization is maintaining strong financial management—and a major aspect of financial management is filing your annual nonprofit tax return. 

If you’re looking for financial best practices and a basic rundown on nonprofit taxes, this brief guide is here to help guide you along the way. Here, we’ll cover the fundamentals of your Form 990, why it’s so important, and how to file your annual return with ease. Let’s jump in!

What is a Form 990?

Form 990 is the IRS tax form filed by the majority of 501(c)(3) organizations each year to maintain their tax-exempt status. However, it’s not to be confused with Form 1023, which is the form that must be filed by a nonprofit to first attain their tax exemption.

When filing the nonprofit Form 990, there are a few variations to choose from, including the Form 990-N, 990-EZ, and 990 PF. The full Form 990 is a twelve-page document requiring ample and detailed financial information, while the modified versions are each shorter and simpler to complete for smaller organizations. Finally, the 990 PF is used solely for private foundations. 

Why is the Form 990 important?

You know your nonprofit organization is exempt from paying federal taxes, so you might be wondering why an annual tax return is necessary. Besides it being an IRS requirement, here are a few key benefits of filing your yearly 990:

• Maintaining your tax-exempt status. To remain exempt from federal taxes year after year, nonprofits must file Form 990 with the IRS. After three consecutive years of failing to file, the IRS will revoke that status and your organization will have to reapply and pay the application fees again.
• Avoiding significant fines. Failing to file your 990 on time can rack up steep fines—and quickly. For small and midsize nonprofit organizations, missing the deadline will incur a fine of $20 per day that the return is late, with a maximum penalty of either $10,000 or 5% of your organization’s annual gross receipts.
• Increasing transparency with stakeholders. After filing and submitting your annual 990, your documents are made publicly available. This helps provide donors, grantors, and other stakeholders with a clearer look at your organization’s finances. Then, they can make an informed decision as to whether they’d like to contribute.

Your Form 990 is a required document for the federal government, but organizations with an open mind about the process often find that reviewing their finances to file their Form 990 is a form of accountability. Reviewing your organization’s financial information on a regular basis gives you the opportunity to check in on financial goals and ensure you’re on the right track. 

What to know about filing nonprofit tax returns

When you’re ready to file your Form 990, be sure to consider and research the following areas to ensure you prepare your return accurately and easily.

Which form to file

As there are multiple versions of the Form 990, it’s important to file the right one for your organization.

Small and midsize nonprofit organizations are likely eligible for one of two abridged versions of the form. But how can you find out which one you’re required to file? File 990’s guide on these smaller forms states the following:

• Form 990-N may be filed by organizations with annual gross receipts of less than $50,000.
• Form 990-EZ may be filed by nonprofit organizations with annual gross receipts between $50,000 and $200,000.

Alternatively, organizations with greater than $200,000 in receipts will need to file the full 990, while private foundations, regardless of financial status, should file the 990-PF.

Your Form 990 deadline

Completing your Form 990 by its specified deadline is critical for avoiding the negative consequences of fees and a revoked tax-exempt status. Your organization’s tax deadline is the 15th day of the 5th month after the end of your fiscal year. If your organization is one of the many that uses the calendar year fiscal cycle, your tax returns are due on May 15th.

However, if your 990 or 990-EZ deadline is quickly approaching and you’ve yet to complete your return, you can file for a six-month extension with Form 8868. The 990-N, unfortunately, is ineligible for an extension, so make sure you begin preparing your form with ample time to spare.

How to file your nonprofit organization’s tax return

Since the Taxpayer First Act was passed in 2019, all organizations are required to file their 990s electronically rather than sending in a physical copy, as many have done in years past. Luckily, the process is simple—especially if your finance team is equipped with the right tools. 

While some nonprofit organizations, especially those that qualify for the 990-N, choose to file their own tax returns, it’s not a best practice for most organizations. Your nonprofit organization may choose to either invest in an electronic e-filer or entrust your tax filings with an accountant. Each option has certain advantages: 

• Electronic e-filers are often less expensive and ask your organization easy-to-understand questions in order to help you file your tax returns. The process is very similar to filing personal taxes through TurboTax. This is a great option for nonprofit organizations with a simple filing, often used for either the 990-N or the 990-EZ. 
• An accountant will ensure everything on your tax return is correct and that you’ve filled out any necessary schedules as an extension of your main form. Investing in an accountant who can file these forms on your behalf takes the burden entirely off of your staff members, freeing up more of your time for various programs and initiatives. 

Ultimately, tax filings for nonprofit organizations are a vital component of effective financial management. When you do your research and invest in the powerful tools you need, you’ll set your organization up for ongoing success every tax year.