If you represent a nonprofit organization or small business in the United States, you need to know about Internal Revenue Service (IRS) Form 990. Keeping track of all the tax-related forms you need to fill out can be overwhelming. This quick guide will help you understand what Form 990 is, why it is important for your operation, and which types of companies need to complete it.
For starters, Form 990 is a federal tax form that many tax-exempt organizations must submit to the IRS as part of their annual reporting. It is meant to provide the public and the government a snapshot of its activities for the year, and many donors use it to base their gifting decisions. The IRS requires Form 990 because it wants to make sure these organizations conduct their businesses in ways that are consistent with their responsibilities.
The Types of Businesses That Fill out Form 990
Form 990, also called the “Return of Organization Exempt from Income Tax” form, is typically required for tax-exempt organizations whose gross receipts are $200,000 or higher or whose total assets are $500,000 or greater by the end of the tax year.
The following nonprofits are also required to file Form 990:
- Private foundations, regardless of their income. They will file Form 990-PF.
- Smaller nonprofits that have gross receipts of $50,000 or less. These companies must file a Form 990-n or e-Postcard.
- Any organization that is tax-exempt under the U.S. tax code, including Sections 501(c), 4947(a)(1), and 527.
Companies exempt from filing Form 990 include churches and most faith-based organizations, subsidiaries of other nonprofits, state institutions, and government corporations.
Organizations may find it taxing, but Form 990 is quite beneficial. It collects specific data about the programs, missions, and financiers of tax-exempt organizations, and allows businesses, public charities, and nonprofit organizations the ability to report their accomplishments of the previous year. This will enable them to make a case for keeping their tax-exempt statuses.
Form 990 Filing Requirements
To meet the requirements, Form 990 must be filed by the fifteenth day of the fifth month after the accounting period ends. The form has many parts, but the two most significant are 1) identifying yourself as a private foundation or a public organization and 2) indicating your organization’s board members and how much the top staff get paid.
Twelve different parts make up the Form 990. They include the following:
- Part 1: This portion is a summary of the organization. It requires details about the organization’s governance and specific activities, expenses, revenue, fund balances, and net assets.
- Part 2: The signature portion. Here, the company’s officer attests under penalty of perjury that the information is correct, complete, and accurate to the best of their knowledge.
- Part 3: This is a statement of the company’s accomplishments. It includes a mission statement, revenues, and the expenses of the company’s three most extensive program services.
- Part 4: This portion is a checklist of schedules that must be completed and accompany Form 990. These schedules range from Schedule A through R, with Schedule O the most commonly used to provide supplemental information.
- Part 5: This is where you include statements about other tax compliance and IRS filings.
- Part 6: You will need to include information in this portion related to the organization’s governing body, management, and policies.
- Part 7: Here, you will list the compensation that you pay former and current directors, officers, key employees, trustees, employees receiving more than $100,000, and up to five independent contractors who receive more than $100,000 in payment.
- Part 8: This part will include a statement of the company’s revenue from exempt funds and unrelated business income.
- Part 9: Here is where you report your company’s expenses.
- Part 10: This is where you include the company’s balance sheet.
- Part 11: This is the reconciliation of the company’s net assets.
- Part 12: This part explains the company’s financial statements and reporting, including whether the organization uses accrual, cash, or other methods to prepare the form and whether the financial statements were reviewed and prepared by an independent accountant.
It is important to note that some companies may be eligible to complete a simpler version of Form 990, referred to as Form 990 EZ, or the “Short Form Return of Organization Exempt from Income Tax.” This form can be supplemented by those organizations with gross receipts of less than $200,000 and total assets that are less than $500,000 at the end of a fiscal year.
The Benefits of Working With a Trusted Tax Advisor
A company’s activities during the calendar year may be subject to heavy scrutiny by the IRS as a result of Form 990. This form discloses all of the organization’s significant activities, but the amount of information that is required can leave any professional struggling.
You do not have to deal with this tedious hassle on your own, however. If your organization is worried about getting the Form 990 process right, you may want to consider working with a trusted tax advisor. These experts will not only help ensure you have all the correct financial information to file Form 990, but will also help you to complete the process accurately so you can avoid costly audits and delays in your tax returns.