Your tax-exempt standing might preserve you from having to file conventional tax returns, however sustaining the designation comes with its personal labyrinth of varieties, necessities, and deadlines.
The shape 990 collection is designed to supply the IRS—and the general public—details about your group’s packages and actions in addition to your income, bills, and belongings. And if used appropriately, it may allow you to construct belief along with your group and your donors.
In our webinar, A Guidelines for Assembly Your IRS 990 Sequence Deadline (and Sustaining Compliance), Nikita Sullivant walked the viewers via key concerns when submitting a 990. Listed here are 9 widespread errors Nikita and her workforce at Tax990 see nonprofits make when submitting their type 990s.
Mistake #1: Not Submitting
Energetic nonprofits must file their 990 yearly. This contains years if you don’t have any exercise. In case your group remains to be claiming tax-exempt standing, you must file your 990. Along with the penalties for submitting late, the IRS will mechanically revoke your exempt standing after failing to file for 3 consecutive years.
Mistake #2: Submitting the Improper Type
The shape you file will rely in your group’s monetary exercise throughout annually. As your monetary state of affairs modifications, so may the shape you must file. The most typical varieties are:
- 990-N: The e-postcard model could be filed in case your gross receipts had been $50,000 or much less.
- 990-EZ: The short-form model is for organizations whose gross receipts had been lower than $200,000 and the entire belongings on the finish of the yr had been lower than $500,000.
- 990: The long-form model is for organizations which have gross receipts of not less than $200,000 or complete belongings of not less than $500,000 on the finish of the tax yr.
You possibly can all the time transfer up in your tax type, however you may’t go backwards. You possibly can present extra element if you wish to, however you may’t present much less element that you’re required based mostly in your gross receipts. For instance, a small group that qualifies for a 990-N can file a 990-EZ. However a corporation that matches the necessities for the 990-EZ can’t file the 990-N.
Mistake #3: Lacking Your Deadlines
Your annual 990 collection return should be filed by the 15th day of the fifth month following the shut of your group’s tax yr. In case your group closes their books on December 31, your deadline to file your type 990 is Could 15. When the deadline falls on a weekend or authorized vacation, the deadline is the subsequent enterprise day.
If you must file an extension, that extension should be filed by your preliminary deadline (the 15th day of the fifth month following the shut of your tax yr).
Mistake #4: Marking “Preliminary” or “Remaining” When It Doesn’t Apply
There’s a field on the shape that confuses quite a lot of organizations. Solely verify the “preliminary” field if that is your group’s first yr claiming tax exempt standing. And solely verify the “last” field when that is the final yr your group will likely be claiming tax exempt standing. If that is your last yr, keep in mind that you must file a Schedule N alongside along with your type 990.
Mistake #5: Not Taking Benefit of Schedule O
Schedule O is the place you report supplemental info out of your 990 or 990-EZ as a substitute of separate attachments. That is your alternative to supply a transparent narrative in your group’s operations. Keep in mind, these varieties are for the IRS, however as a result of they are going to be public, Schedule O lets you make clear particulars that will in any other case be open to interpretation.
Mistake #6: Skimping Program Service Accomplishments
The Program Service Accomplishments part of your 990 explains to the IRS—and potential funders—how you might be working your group and adhering to your mission. As a substitute of offering normal or obscure explanations of your three largest actions, spotlight them as you’d in case you had been speaking them to a donor. Not solely are you able to re-use this clarification for future grants, however it’s best to assume that funders will likely be studying your 990s. Make the most of Schedule O in case you want extra space.
Mistake #7: Shedding Monitor of Essential Documentation
Like tax documentation you’d save on your private tax submitting, your tax-exempt group ought to have a course of for managing the documentation on your 990 submitting. You’ll need to preserve data that substantiate any revenue, deduction, or credit score for 3 years from the information the return is filed. Your fund accounting system is a centralized location to deal with essential grant documentation, invoices, and different program bills.
Preserve your letter of dedication, articles of incorporation, by-laws, and board minutes completely. The method for managing these paperwork needs to be included in your inside controls.
Mistake #8: Not Submitting Electronically
Since July 1, 2019, the IRS requires tax-exempt organizations to file their 990s electronically. Submitting electronically makes the method extra environment friendly and, in case you select the best supplier, simplifies the submitting course of. Plus, in case you don’t file electronically, the IRS will reject your submission, probably incurring late charges.
Mistake #9: Not Consulting Your Tax Advisor
Submitting your type 990 could be difficult if you’re new to the method or in case your group had a big change in gross receipts up to now yr. It’s price having a tax advisor who works with nonprofit organizations obtainable to deal with any particular questions you will have so you may keep away from having your 990 rejected.
Select Companions That Perceive Nonprofit Organizations
Tax-exempt organizations have totally different wants than business companies. You want companions that perceive what it means to be a nonprofit, from managing restricted funds to submitting their 990 collection. Whether or not you might be searching for an e-file supplier on your 990 or a fund accounting system, search for companions that target organizations such as you. You deserve options which can be constructed for you—not workarounds from a business system.
To study extra about how nonprofit accounting software program will help your tax-exempt group save time and enhance compliance, take a look at our white paper, Why Nonprofits Want Nonprofit Accounting Software program.