For nonprofits, Form 990 is more than just paperwork—it's a crucial annual filing that maintains your tax-exempt status. This document is required by the Internal Revenue Service (IRS) and serves as a financial report card, demonstrating legitimacy and transparency to both the government and the public.
In this guide, learn everything you need to know about Form 990: its importance in running a nonprofit, the different types, and the step-by-step process for filing correctly.
Table of Contents
Types of 990 Forms for nonprofits
How to file Form 990 to maintain tax-exempt status
Final thoughts on Form 990 for tax-exempt organizations
What is a Form 990?
Form 990, officially titled "Return of Organization Exempt from Income Tax," is an annual informational document that tax-exempt nonprofits must file with the IRS.
The document typically includes details about your nonprofit's mission, programs, and finances. You can also highlight your organization's achievements from the past year.
While not technically a tax return, think of Form 990 as the IRS's tool for ensuring your nonprofit complies with tax-exempt regulations.
This form applies to organizations exempt under Internal Revenue Code Sections 501(c), 527, and 4947(a), covering charitable organizations, nonexempt charitable trusts, and political organizations.
Why is Form 990 important?
Compliance with IRS and state laws
Nonprofits are legally required to submit Form 990 to the IRS. Most states rely on it to conduct charitable and other regulatory oversight.
It also helps them assess whether organizations claiming exemption from state income tax are following their specified state-exempt requirements or not.
Transparency and trust
Form 990 is a publicly accessible document that discloses information about your finances, activities, and governance to potential supporters. This nonprofit transparency helps you gain their trust and even convince them to support your organization. It cultivates public support and establishes credibility.
Grant funding and sponsorships
Many grant-making organizations and corporate sponsorship opportunities require you to include a copy of Form 990. Having missing, late, or incomplete records will place you at a disadvantage.
Influence donor decisions
There is a good chance that donors, especially major gift givers, will review your Form 990 before making any decision for insights into which of your programs are most effective.
Internal oversight
Preparing Form 990 requires a thorough evaluation of your organization's financial activities and governance practices. It will help your leadership identify areas of improvement and practices that deliver results.
Types of 990 forms for nonprofits
Form 990 comes in four versions, each specific to different types and sizes of nonprofits. The version your organization needs to file depends on your gross receipts (total income before expenses) and your assets (everything your organization owns).
1. Form 990-N
Form 990-N (e-Postcard) is for organizations with gross receipts of $50,000 or less. This short online form requires basic information like your nonprofit's name, address, EIN, tax year, principal officer details, website URL, and confirmation of receipts under $50,000.
While it's the simplest version, eligible organizations can opt to file a full return for more comprehensive reporting.
2. Form 990-EZ
Form 990-EZ is for organizations with gross receipts under $200,000 and total assets below $500,000. This four-page form is a condensed version of the full Form 990, requiring more detailed information than Form 990-N.
It includes balance sheet data, program accomplishments, and itemized grant information. Eligible organizations can also opt to file the standard Form 990 if they prefer.
3. Full-Form 990
Form 990 is the standard version for larger nonprofits with gross receipts of $200,000 or more or total assets of $500,000 or more. This comprehensive 12-page form requires detailed organizational information, including your mission, financial records, and annual accomplishments.
4. Form 990-PF
Form 990-PF is specifically for private foundations, regardless of their financial status. This 13-page form requires detailed reporting on the foundation's private assets, trustees, officers, grants awarded, and other financial activities.
5. Form 990-T
Form 990-T is for nonprofits that have income of over $1000 from activities unrelated to their main mission. Form 990-T doesn't replace your regular Form 990. You still need to file whichever version of Form 990 fits your organization's size and type in addition to Form 990-T for reporting extra income.
For example, if a charity runs a gift shop, the income from that shop might be considered unrelated business income and require Form 990-T.
How to file Form 990 to maintain tax-exempt status?
According to the Taxpayer First Act of 2019, a tax-exempt organization is required to submit the Form 990 electronically. While this process can seem daunting, especially for first-timers, we've broken it down into manageable steps.
1. Choose an authorized e-file provider
To file Form 990 electronically, you'll need to choose an IRS-authorized e-file provider - services or software platforms approved by the IRS to submit your form securely online.
When choosing a provider, make sure they support all the forms and schedules your nonprofit needs. The IRS hosts a list of authorized e-file providers that offer software and services that allow you to file Form 990 electronically.
2. Register with the selected e-file provider
Create your account with the chosen e-file provider. You will have to enter information about your organization, such as your Employer Identification Number (EIN), contact information, fiscal year, and other relevant details.
3. Gather necessary information
Based on the form you have to submit, make sure you have all the relevant information you need beforehand. Gather details, including:
- Basic information (name, address, EIN)
- Financial information (income, expenses, assets, liabilities)
- Information about your programs and accomplishments
- Governance, management, and policies
- Compensation paid to officers, directors, trustees, key employees, etc.
4. Complete the application using the e-File provider’s software
Carefully follow the instructions provided by the e-file solution to start and file Form 990. The software will actively guide you through the process, prompting you to enter the necessary information as per the field.
Most software programs automatically check for errors and omissions and typically include validation checks to ensure that all essential fields are completed. However, you should double-check the information manually to play it safe.
Final thoughts on Form 990 for tax-exempt organizations
Filing Form 990 is a crucial responsibility for tax-exempt organizations, serving multiple purposes beyond maintaining your status. It builds trust, reinforces credibility, and demonstrates transparency in your operations. This accountability can ultimately attract donors and encourage contributions, strengthening your nonprofit's financial health.
While Form 990 is essential, it's just one part of managing your nonprofit's finances. Zeffy's free donation platform can help streamline your financial processes. With Zeffy, you can securely collect donations through various methods without fees, set taxation amounts, automatically generate tax receipts, and manage all donor information in one place.
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