Government documents and laws and regulations can be complex and challenging for nonprofits who do not know about legal and compliance issues. The IRS Form 990 is one of the most important documents nonprofit board members are responsible to fill on time, it serves a very important purpose for the government and the public at large. Form 990 is the IRS’ primary tool for gathering information about tax-exempt organizations, educating organizations about tax law requirements, and promoting compliance. Form 990 is a significant public relations tool that nonprofits are required to fill out correctly and carefully. Having filed the 990 makes sure that nonprofits are conducting their business that is consistent with their public responsibilities.
What Is the IRS Form 990?
The federal tax document is an annual tax return information filed by tax-exempt organizations with the IRS that show important information about the mission, programs, and financial information such as statements of revenue, expenditures, and balance sheets. Form 990 is an annual compliance report of the organization to the IRS that documents information on governance, documentation of decisions made, and policies to demonstrate accountability and transparency. Moreover, Form 990 ensures that a tax-exempt organization is adhering to best practices and stays within the confines of its tax-exempt purpose. The organization is liable to stay compliant with applicable federal tax law, from payroll and information reporting to unrelated business income taxes. By filling the form, the tax-exempted nonprofits share information with the public about their programs and reveal what they accomplished the prior year, consequently, filling the form allows each nonprofit to retain its tax-exempt status.
Requirements for Tax Exemption
Tax-exempt organizations that have an annual gross of $200,000 or assets of at least $500,000 are not required to file the annual information return. Federal and state governments exempt nonprofit organizations and foundations from paying taxes as they serve the public. They comprise charitable, educational and religious organizations. Churches, and most faith-based organizations such as religious schools, and missionary organizations are exempted from filing the form. Moreover, subsidiaries of other nonprofits including parent groups and State institutions such as universities and government organizations are excluded from the annual return filing requirement
To qualify for tax exemption, the nonprofit need to apply under Section 501(c)(3) of the Internal Revenue Code. It is a prerequisite for the organizations to lay off their contributions on their tax returns, moreover, their earnings should not be related to any private shareholder. Therefore, nonprofit organizations are required to file form 990 based on their assets, gross receipts, and public charity status.
What is the Significance of 990 Tax Returns?
By filing Form 990, nonprofits have 501(c)(3) status that signifies the exemption from federal income tax and their eligibility to receive tax-deductible charitable contributions. Since Form 990 is s a public document, it provides an easy, and convenient way for the donors interested in supporting nonprofits.
As nonprofits file their annual 990, it helps to increase transparency with the stakeholders. Donors look at Form 990 before giving it to the organization. The common areas reviewed by donors include a description of major program activities and accomplishments of the nonprofit. Donors verify the organization’s financial viability. It indicates that nonprofits have access to their cash reserves, big revenues, and how well a nonprofit can pay its top employees, clients, and donors.
Having significant information on paying 990 taxes returns allows the nonprofit to function lawfully by spending adequate time and energy to fill out their 990 carefully before reaching deadlines. It helps nonprofits to know their filing responsibilities that help to avoid substantial fines, and consequently, help makes the tax filing process smooth and easy.
Tax Filing Process and Forms
After having the approval of the organization’s tax-exempt status with the IRS, nonprofits can get involved with the process of filing tax returns.
- Gather documents
The paperwork should be prepared with the goal of acquiring tax-exempt status. The formation documents should specifically state details about the organization and structure of the nonprofit. Before beginning with the tax filing process, gathering the company’s information essentially helps to fill out the business tax filing form. Once the formation documents are correct, requesting tax-exempt status requires the completion of IRS Form 1023, Application for Recognition of Exemption.
- Taxpayer identification number (TIN)
The tax filing process requires all nonprofit organizations to have a nine-digit taxpayer identification number known as TIN. There are several types of TINs, including Social Security numbers and Employer Identification Numbers (EINs). Businesses as a corporation or in partnerships should have an employer ID number (EIN). The purpose of allocating TIN and EIN is to avoid fraud issues in banks. Hence, it secures tax exempted status of the nonprofits.
- Financial Records of the nonprofit
Nonprofits are also required to submit financial statements and other information including the salaries of directors, officers, and employers. The financial statements accurately report businesses’ income and expenses on their tax return. Financial records comprise income statements, balance sheets, and supporting documents, such as receipts.
- Determine which type of tax form is used by nonprofits and other corporations
Nonprofits need to know which form of tax to file. Businesses have to pay sole proprietor tax returns. The partnership should file a tax return known as Form 1065. Corporations use Form 1120. Limited liability companies ((LLCs) should file tax returns based on their business structure. Like a corporation, LLCs must use Form 1120, while single-member LLCs should file multi-member LLCs file Form 1065.
- Knowing about deadlines
The nonprofits completing the tax forms should follow the tax return deadlines. Public charities need to file Form 990 by the 15th day of the fifth month after the end of the organization’s fiscal year. Except for 990-N filers, the IRS will allow two 90-day extensions if an organization needs it. If an organization is required to file an information return or annual electronic notice and fails to do so for three consecutive years, the organization will lose its tax-exempt status. The nonprofits may face penalties for late filing and income tax liability. Late filing fees can be as high as $50,000.If a nonprofit fails to file for three years in a row, the nonprofit’s tax-exempt status will be automatically revoked. However, if the organization has unrelated business income, it must file an extension for the 990 and a separate extension for the 990-T.
Revocation can cost the nonprofit by paying additional fees and paperwork, and they won’t have any chance for an appeal. The federal government recognizing the value that nonprofits bring to their communities has made relevant changes to the procedure of filing form 990. Nonprofit organizations can make their 990 and their exemption application available for public inspection at their regional and district offices during regular business hours. Moreover, they also have the access to make 990s available on their websites.
Common Errors that make Form 990 is incomplete
Taxation professionals recommend that nonprofits should file their tax returns as they gather all the relevant paperwork to fill out the form. This implies nonprofits complete all the paperwork accurately. Tax professionals review many taxation filing forms and have come up with common errors that reflect that Forms 990 are incorrectly prepared.
Page 1 of Form 990 contains summary information relating to the organization. Relevant company information allows the public, private foundations, and media to get a clear and vivid idea about the business structure and its achievements. Usually, the organizations write a lengthy summary of their most significant activity on Page 1. The other errors can be an outdated mission statement or program activities, wrong contact information, and an incorrect board list. The wrong name of the company or Federal Employer Identification Number (EIN) may cause the tax file return to get rejected.
Missing schedules is also one of the most common reasons for incomplete returns. Many times, organizations select the wrong public charity type, or incorrectly complete Schedule K. This Schedule reports information regarding tax-exempt financing. Schedule K includes numerous questions about the company’s compliance with IRS requirements. Therefore, if Schedule K is not filled accurately, it may trigger an additional inquiry from the IRS regarding supplementary information about the company.
Similarly, Schedule O is used to provide required disclosures based on the answers to certain questions contained in the core form of Form 990. Many companies are unable to complete their disclosures, sometimes information is not updated or inadequate or current reporting information is too lengthy. It is also observed that organizations fail to include the activity of the SMLLC in the Form 990 filing, or they report only the net income of the SMLLC in error. Organizations are unable to fill Schedule L which reports a variety of transactions with interested persons.
To avoid any further complications in the tax filing process, the nonprofits should take care to read each Schedule to ensure that the answers to the questions asked should be concisely and appropriately filled.
Hire Taxation Advisors
Organizations that have lost their tax-exempt status are no longer eligible to receive tax-deductible contributions and require help from experts that could assist them in filing their business taxes. They can consider hiring an accountant or other tax professional to help prepare and file their tax returns.
A2Z Filings, a professional document filing service assists nonprofit corporations with paperwork requirements regarding making tax filings. Shai Goldstein, the founder of A2Z Filings, recognized the need and establish an organization that understands the problems and challenges of nonprofits, facilitates them with the paperwork, and gets their 501 c 3 approved by the IRS. As a nationwide leader in document filing services, A2Z Filings provides quality, personalized attention to all of its clients, making tax filing easier for nonprofits. Professional assistance of A2Z Filings taxation professionals helps nonprofits to come to know the changes in the tax filing system and learn about essential documentation.
Experts at A2Z Filings facilitate the nonprofits to complete filing methods with accuracy. They also help nonprofits to fill out the necessary documentation mentioned in Form 990. The taxation professionals analyze all the essential information required. They also interpret the confusing tax questions that nonprofits are unable to resolve. After having gathered appropriate documents, they fill out tax forms perfectly. Moreover, they provide solutions to any problems that the client may have concerning the process of filling out the 990 forms
Document filings professionals at A2Z Filings help nonprofits to apply for Taxpayer identification numbers or EINs. The professional team at A2Z Filings prepares articles of incorporation and provides a framework for their operation and management. They help to prepare the most important legal document of any organization, called Bylaws. In Bylaws, the specialists outline the day-to-day rules for an organization. The other important documents include facilitating nonprofits to develop a mission statement and modern business model.
While preparing the articles of incorporation, they manage all relevant documentation. This helps companies to certify the name of the corporation, the structure, and the type. A2Z Filings have helped hundreds of corporations get established, with an impressive 0-percent of its clients having ever been turned down.
Hence, A2Z Filings experts guide the nonprofits or foundations to prepare and file their tax returns, they help clients to navigate tax obligations within complex financial situations. Working on behalf of an organization, they advise the business on how to comply with tax guidelines and regulations as prescribed by the state. Tax specialists at, A2Z Filings experts influence investment or financial strategies to help minimize an enterprise’s tax payments. Through their nonprofit 501(c)(3) corporation document preparation services, they help nonprofits go through the process swiftly, establish their corporation in record time and file 990 tax returns with ease. Professional advisors help nonprofits accurately file, deduct write-offs, and claim deductions.
Utilizing A2Z Filings services will help organizations minimize tax liability by decreasing their taxable income, hence facilitating them to set up a nonprofit, tax-exempt organization successfully.
