Nonprofit organizations help improve people’s quality of life at the municipal, state, or even national levels. Consequently, this type of organization is eligible for specific tax benefits, namely that they are exempt from most federal income taxes.
However, nonprofits with the IRS’s tax-exempt status are still required to fulfill certain requirements, such as filing a yearly Form 990 or other 990 series information return.
Understanding tax issues related to nonprofit organizations can be time-consuming and complicated for beginners. So in this article, we’ll give a detailed tax preparation guide for nonprofits by answering the most common questions, including what Form 990 is, what form a nonprofit organization needs to file, and how to file taxes for nonprofits.
What is the IRS Form 990?
The IRS Form 990 series are informational tax forms that most nonprofit organizations must submit annually. Both the long-form and short-form provide the IRS with details about the organization’s financial situations and annual activities, including grants, fundraising fees, program service revenue, employee salaries, and the assets the organization purchased, sold, or maintained. The form also shows the number of employees, the number of voting members in the governing body, and the organization’s goal statement.
According to the IRS, all tax-exempt nonprofits must file their three most recent Form 990s. All Form 990s are available to the public, meaning anyone can access the data. Some companies use these documents to provide funders with additional information about the nonprofits they’re interested in sponsoring.
Which form does a nonprofit file?
Not all nonprofit organizations file the same Form 990. Many types of nonprofits, including religious institutions, foreign organizations, and specific governmental and political organizations, are exempt from filing the Form 990 series.
Nonprofits file the general IRS Form 990 if their organization’s gross receipts are $200,000 or more and its total assets are $500,000 or more. Form 990 is a twelve-page form typically filed by old and large nonprofits.
Tax-exempt nonprofit organizations with gross receipts of $200,000 or less and assets less than $500,000 at the end of the year are required to file Form 990-EZ. Form 990-EZ is only four pages long and is considered the short-form return.
Tax-exempt nonprofits with gross receipts less than or equal to $50,000 may file a Form 990-N. Form 990-N is often known as the 990 Postcard. This form is the shortest of the IRS Form 990 series, with only eight questions, and must be filed electronically. This form differs from other Form 990s because it’s much shorter and easier to complete.
What is the deadline for filing nonprofit taxes?
The deadline for filing nonprofit tax returns is the 15th day of the fifth month after the end of the organization’s fiscal year. Since most nonprofits operate on the fiscal year, their tax forms are due on May 15th unless they’ve specifically requested an extension. For example, if your organization’s accounting year ends on December 31st, 2021, you must file Form 990 by May 15th, 2022.
What happens if a nonprofit fails to file a Form 990?
Nonprofit organizations that fail to file a Form 990 series tax form for three consecutive years can lose their tax-exempt status, which can cause long-term consequences for the organization.
If you’re unsure how to file a Form 990, you can check our step-by-step guide below or consult a tax professional.
The IRS Form 990 tax preparation guide for nonprofits
- Determine which form you must file according to the IRS criteria.
- Keep all of your business information (including your business’s legal name, tax year, Employer Identification Number (EIN), gross receipts, contact information, etc.) in order. This practice is also vital to any type of tax preparation.
- Gather information about employee salaries, fundraising activities, and other income or donations. You may also need to include your W-2s for employees, donation receipts, etc.
- Tax-exempt organizations are generally required to file electronically. Especially large organizations, which file at least 250 returns (such as Form W-2 and Form 1099), are required to file Form 990 electronically.
- Fill out the form as indicated, paying close attention to the Checklist of Required Schedules, which outlines which sections must be filled out based on your organization’s special circumstances.
- File the form by the 15th day of the fifth month after the end of your organization’s accounting period.
You might also be interested in:
- How to File Taxes as an Independent Contractor: A Step-by-Step Guide
- Top 3 Lessons Learned for Filing Business Taxes in 2022
- Business Finance 101: Your Complete Guide to Different Types of Taxes in the US
The bottom line
Filing nonprofit taxes may seem challenging at first, but as long as you keep our IRS Form 990 tax preparation guide in hand, together with the right knowledge, resources, and tools, you can focus on starting and growing your nonprofit organization.
Don’t forget to subscribe to the Shoeboxed blog for more helpful business information, tax guides, and best practices for entrepreneurs!
Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.