Demystifying Form 990: Everything Nonprofits Need to Know

Guest post by File 990

Your nonprofit’s federal tax-exempt status is a critical factor in achieving your program goals. But, actually acquiring your status can be challenging. Fortunately, with the proper preparation and data maintenance, your nonprofit can conquer your tax preparation. 

Let’s start your nonprofit tax preparation by introducing you to the most important document in the process: Form 990. Ready to learn more?

FAQs about Form 990

Let’s begin by answering some frequently asked questions about Form 990.

What is Form 990?

Form 990 is an annual form nonprofits have to fill out to retain their tax-exempt status with the IRS. The primary purpose of Form 990 is to inform the IRS of your nonprofit’s financial practices so they know that you’re following its tax-exemption guidelines. 

According to File 990, there are a few variations of Form 990. The most common forms are: 

• Form 990-N, for nonprofits with gross receipts totaling less than $50,000

• Form 990-EZ, for nonprofits with gross receipts totaling less than $200,000 but more than $50,000

• Form 990-PF, for private foundations

Usually, nonprofits file the standard Form 990 if they aren’t eligible for Forms 990-N or -EZ, as the standard form is extensive. However, since the forms are available publicly, your nonprofit can file Form 990 even if you’re eligible for an abridged version if you want more transparency into your finances. 

What information is included in Form 990?

The required information depends on the type of form your nonprofit is filing. That being said, this basic information is required for all types of Form 990:

• Employer Identification Number (EIN), also known as a Taxpayer Identification Number

• Organization name and mailing address

• Contact information for the principal officer

• Website address, if the nonprofit has one

• Confirmation of the nonprofit’s annual gross receipts 

• If applicable, a statement that confirms that the nonprofit has terminated services

For the longer forms, your nonprofit will have to provide more information, such as revenue, expenses, board of trustee and staff contact information, and details about your initiatives. 

Why is Form 990 important?

Your nonprofit should prioritize accurately filling out Form 990 to:

• Comply with IRS regulations. Form 990 is necessary to retain your federal tax-exempt privileges and maximize your fundraising revenue. 

• Ensure transparency: Once your Form 990 has been processed, it will become publicly visible. Then, your donors can see that your nonprofit is financially responsible and will handle their donated funds properly. Also, this can prevent fraudulent activity from your staff or board members.

• Establish credibility: Your nonprofit can use Form 990 as an opportunity to provide additional financial context for your accomplishments.   

• Win grants: Foundations and other grantmaking organizations use your nonprofit’s Form 990 to help make funding decisions based on your financial health.

Essentially, Form 990 enables you to show everyone that your nonprofit is a reputable and accomplished organization.

Tips for Filing Form 990

Once your nonprofit knows which version of Form 990 to file, it’s almost time to get started! However, you should keep the following tips in mind before filing your Form 990:

1. Prioritize data hygiene

Your team requires lots of financial and organizational information to accurately and efficiently file your Form 990. According to NPOInfo, the best way to mitigate any human errors while filing is to adopt data hygiene best practices, including:

• Opting for digital solutions rather than paper documents

• Standardizing data entry and maintenance procedures

• Using a CRM and financial database with built-in data-cleaning features

• Regularly auditing, backing up, and removing duplicates from your data

• Training your staff on how to properly use databases

Properly practicing data hygiene streamlines your filing process and allows you to better monitor your financial health, even outside of tax season.

2. Try e-filing software

Not only is filing your taxes online more convenient than via mail but it’s also required for Form 990. But, it can still be confusing to navigate the IRS’ e-filing tool. Fortunately, you can expedite and simplify your filing process by using an e-filing software solution. Using an e-filing platform allows you to avoid expensive accountant fees, save time, ensure accuracy, and preserve your nonprofit’s data security. 

There are many e-filing solutions on the market, so your nonprofit should set your sites on one that's tailored to nonprofit needs. Ensure that your chosen solution has the ability to file the correct type of Form 990 so you can save time and money on the filing process.

3. Account for in-kind gifts

Did you know that the IRS considers non-monetary assets as tax-deductible? In particular, your nonprofit should claim in-kind gifts on your Form 990 to stay in good standing with the IRS.

It can be difficult to determine the exact value of in-kind gifts without a price tag. You can calculate the in-kind donation’s value for your Form 990 by following these simple steps:

• Ask donors to declare the values of items at the time of donation

• Keep track of your in-kind donations in a database throughout the year so you can easily reference your records

• Determine if you’re required to report in-kind gifts

• Calculate the in-kind donation’s fair market value using comps found online or standardized values of common items based on condition, which may be provided by the IRS

• Add this value to your donation total

By accounting for in-kind gifts on Form 990, you can give the IRS a fuller picture of your financial situation and demonstrate your commitment to transparency and accountability. 

Next Steps

Now that you have all of the necessary resources, it’s time to start filing Form 990! By adhering to nonprofit data collection and hygiene standards, categorizing expenses, and working with a qualified Form 990 e-filing software to facilitate the filing process, you can make your tax season stress-free while enjoying the benefits of tax exemption for years to come.