Your tax-exempt standing could maintain you from having to file conventional tax returns, however sustaining the designation comes with its personal labyrinth of types, 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 possibly enable you to construct belief along with your group and your donors.
In our webinar, A Guidelines for Assembly Your IRS 990 Collection Deadline (and Sustaining Compliance), Nikita Sullivant walked the viewers by means of key concerns when submitting a 990. Listed here are 9 widespread errors Nikita and her staff at Tax990 see nonprofits make when submitting their kind 990s.
Mistake #1: Not Submitting
Lively nonprofits have to file their 990 yearly. This consists of years once you don’t have any exercise. In case your group continues to be claiming tax-exempt standing, you want to 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 scenario adjustments, so might the shape you want to file. The most typical types are:
- 990-N: The e-postcard model might be filed in case your gross receipts have been $50,000 or much less.
- 990-EZ: The short-form model is for organizations whose gross receipts have been lower than $200,000 and the overall belongings on the finish of the yr have been lower than $500,000.
- 990: The long-form model is for organizations which have gross receipts of a minimum of $200,000 or complete belongings of a minimum of $500,000 on the finish of the tax yr.
You’ll be able to all the time transfer up in your tax kind, however you possibly can’t go backwards. You’ll be able to present extra element if you wish to, however you possibly can’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 company 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 kind 990 is Could 15. When the deadline falls on a weekend or authorized vacation, the deadline is the following enterprise day.
If you want to 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 “Ultimate” When It Doesn’t Apply
There’s a field on the shape that confuses a variety of organizations. Solely verify the “preliminary” field if that is your group’s first yr claiming tax exempt standing. And solely verify the “closing” field when that is the final yr your group might be claiming tax exempt standing. If that is your closing yr, keep in mind that you want to file a Schedule N alongside along with your kind 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 an alternative of separate attachments. That is your alternative to supply a transparent narrative in your group’s operations. Keep in mind, these types 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’re working your group and adhering to your mission. As a substitute of offering normal or imprecise explanations of your three largest actions, spotlight them as you’d in the event you have been speaking them to a donor. Not solely are you able to re-use this rationalization for future grants, however it is best to assume that funders might be studying your 990s. Make the most of Schedule O in the event you want extra space.
Mistake #7: Shedding Monitor of Vital Documentation
Like tax documentation you’d save to your private tax submitting, your tax-exempt group ought to have a course of for managing the documentation to your 990 submitting. You’ll need to maintain information 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 accommodate vital grant documentation, invoices, and different program bills.
Hold your letter of willpower, articles of incorporation, by-laws, and board minutes completely. The method for managing these paperwork needs to be included in your inner 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 the event you select the precise supplier, simplifies the submitting course of. Plus, in the event you don’t file electronically, the IRS will reject your submission, presumably incurring late charges.
Mistake #9: Not Consulting Your Tax Advisor
Submitting your kind 990 might be sophisticated in case you are new to the method or in case your group had a major change in gross receipts prior to now yr. It’s price having a tax advisor who works with nonprofit organizations obtainable to handle any particular questions you will have so you possibly can keep away from having your 990 rejected.
Select Companions That Perceive Nonprofit Organizations
Tax-exempt organizations have totally different wants than industrial 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’re in search of an e-file supplier to your 990 or a fund accounting system, search for companions that target organizations such as you. You deserve options which might be constructed for you—not workarounds from a industrial system.
To study extra about how nonprofit accounting software program may help your tax-exempt group save time and enhance compliance, try our white paper, Why Nonprofits Want Nonprofit Accounting Software program.
