This is a guest blog by Tax 990.
Form 990 is an essential annual reporting return that certain federally tax-exempt organizations must file with the IRS. While it helps maintain tax-exempt status, the Form 990 preparation process can seem overwhelming.
This blog aims to help you file Form 990 seamlessly by providing guidance on best practices for your filing process.
Understanding Form 990
Form 990 provides the IRS and the public with a detailed report of a nonprofit organization's activities throughout a tax year. The form includes details about the organization's mission, programs, revenue, expenses, governance, and compliance with IRS regulations.
Best Practices for Simplifying Form 990 Preparation
1. Early Preparation and Planning
Start preparing your 990 forms well in advance of the deadline to avoid last-minute rushes and potential errors. Establish a schedule and checklist, assign responsibilities to the concerned individuals, and ensure clear communication channels are in place to complete the filing effectively on time.
2. Maintain Accurate Financial Records
It is crucial to maintain appropriate records throughout the tax year. Keep all financial documents organized and updated, including income statements, balance sheets, expense reports, and receipts.
3. File Appropriate 990 Form
As you may know, there are five different types of 990 forms. You must choose the one that suits your organization’s profile.
Here’s a breakdown of each form, which could help you choose the right 990 form:
Form 990-N applies to nonprofit organizations with a gross receipt of $50,000 or less
Form 990-EZ applies to nonprofits with gross receipts of less than $200,000 and assets of less than $500,000
Form 990 applies to nonprofits with gross receipts more than or equal to $200,000 (or) assets more than or equal to $500,000
Form 990-PF is applicable for organizations categorized as private foundations
Form 990-T must be filed by nonprofits yielding Unrelated Business Income (UBI) of $1000 or more.
4. Review Previous Filings
Leverage the insights gained from previous filings to identify repeating issues or areas needing improvement. This proactive approach optimizes filings and reduces processing time by learning from past year filings.
5. Educate Board Members and Staff
Ensure all stakeholders know the significance of Form 990 and their designated roles in preparing the forms. Offer comprehensive training sessions and resources to familiarize them with the form's reporting requirements, which might help them prepare the forms efficiently.
6. Include Your Team Members in the Filing Process
Break down Form 990 into manageable sections and assign clear responsibilities to relevant staff. Centralizing information gathering could streamline collaboration, minimize errors, and enhance efficiency. Consider using software solutions to streamline the process effectively.
7. Focus on Transparency and Clarity
Provide clear and detailed explanations for all entries on the form. Avoid using complex language that may make it difficult for the IRS and the public to understand. Try to utilize the descriptive sections of the 990 form to the fullest by optimizing your descriptions to reflect your organization’s strengths. Use Schedule O to provide a compelling narrative that effectively showcases your organization's mission and impact.
8. Stay Updated with IRS Guidelines
Be sure to regularly monitor updates and guidelines from the IRS that are specific to Form 990. Compliance requirements and reporting standards can change, so it's crucial to stay informed and ensure ongoing adherence to regulations. You can keep track of updates by using an e-filing solution.
9. Perform Internal Reviews
Before submission, conduct internal reviews of the completed Form 990. Check for inconsistencies, errors, or missing information that could potentially generate IRS inquiries or penalties. This review process helps maintain accuracy and compliance with the IRS.
10. Utilize Reliable E-filing Solutions
Since the IRS mandated the e-filing of all the 990 forms, it is wise to choose an ideal e-file provider among the ample resources available in the market. While choosing an e-file provider consider the following points,
Authorized by the IRS
Supports all the necessary forms and schedules
Maintains standard data security protocols
Stay compliant with the IRS norms
Conclusion
Preparing Form 990 doesn’t have to be overwhelming. By adopting best practices, utilizing resources, and maintaining a proactive approach, nonprofits can streamline the preparation process while ensuring accuracy and compliance with the IRS tax obligations.