Form 990s and More: A Quick Tax Guide for Small Nonprofits

A significant part of running an effective nonprofit is maintaining effective 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 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 Form 990, there are a few variations to choose from, including the Forms 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.

Why is the Form 990 Important?

You know your nonprofit 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. After three consecutive years of failing to file, the IRS will revoke that status and your nonprofit will have to reapply and pay the applicable fees again.
  • Avoiding significant fines. Failing to file your 990 on time can also rack up steep fines—and quickly. For small and midsize nonprofits, missing the deadline will incur a fine of $20 per day 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 as a way to provide donors, grantors, and other stakeholders a clearer look at your organization’s finances. Then, they can make an informed decision as to whether they’d like to contribute.

When you look at your nonprofit taxes as a crucial and beneficial part of running the organization, rather than just another chore, it can make the process more enjoyable for everyone involved. It might even help you create a better document to represent your organization!

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

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

Small and midsize nonprofits 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? This guide to the 990 N vs. 990-EZ from File 990 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 nonprofits 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 fiscal status, should file the 990-PF.

Your Form 990 Deadline

Completing your Form 990 by the specified deadline is critical for ensuring effective financial practices and avoiding the negative consequences previously outlined. Keep in mind that an organization’s tax deadline is the 15th day of the 5th month after their fiscal year ends. So for those following the calendar year, 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 990N, unfortunately, is ineligible for an extension, so make sure you begin preparing your form with ample time to spare.

How To E-File

Since the Taxpayer First Act was passed in 2019, all organizations are required to file their 990s electronically rather than send 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. That’s why we suggest investing in a nonprofit tax software.

In fact, this re:Charity guide to Form 990 software explains the purpose of a dedicated e-Filer along with reviews of top choices—of which File 990 is ranked first. When you work with an IRS-approved e-file provider, you can rest assured your forms are filed accurately, completely, and on time. 

All in all, nonprofit taxes are a vital component of effective financial management. When you do your research, follow the steps outlined above, and invest in the powerful tools you need, you’ll set your organization up for ongoing success in finances, revenue generation, donor management, and other day-to-day operations.

By Matthew Tooker of File990. Mathew is an expert in sales forecasting, analytics, goal-setting, client growth, and business development. With experience serving the Greek life community, nonprofits, and other member-based associations, Mathew is dedicated to providing tremendous value to his clients.

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