What a Form 990 tells funders about your organization

What is a Form 990?

A Form 990 is an annual information return that most tax-exempt organizations, including charities and non-profits, must file with the Internal Revenue Service (IRS). The form is used to report an organization's financial activities, governance, and compliance with tax laws.

Why is a Form 990 important?

A Form 990 provides funders and the public with a snapshot of an organization's financial health, governance, and operations. It helps stakeholders understand an organization's:

• Financial resources and management
• Governance structure and decision-making processes
• Compliance with tax laws and regulations
• Program activities and achievements

Who must file a Form 990?

Most tax-exempt organizations must file a return from the Form 990 series each year. Which one depends on size: Form 990-N if gross receipts are normally $50,000 or less, Form 990-EZ or 990 if gross receipts are under $200,000 and total assets under $500,000, and the full Form 990 above those levels. This includes:

• Charities and non-profits
• Private foundations
• Public charities
• Social welfare organizations
• Trade associations

What information is reported on a Form 990?

A Form 990 requires organizations to report on:

• Financial statements (balance sheet, income statement, and cash flow statement)
• Governance and management practices
• Program activities and achievements
• Compliance with tax laws and regulations
• Compensation of officers, directors, and key employees

To ensure compliance, review the IRS website (irs.gov) and consult with a tax professional or accountant to determine if your organization must file a Form 990.

What information does a Form 990 reveal?

A Form 990 is a comprehensive report that provides funders with a detailed picture of your organization's financial health, governance, and operational efficiency. Here are the key areas of information that a Form 990 covers: Financial Data:

• Revenue and expense information, including income from donations, grants, and fundraising events
• Assets, liabilities, and net assets (equity) of the organization
• Compensation and benefits paid to employees and officers

Governance and Management:

• Board composition and leadership
• CEO and staff compensation
• Conflict of interest policies and procedures

Program and Service Information:

• Program services and activities
• Goals and objectives of the organization
• Financial support for programs and services

Compliance and Accountability:

• Compliance with tax laws and regulations
• Internal controls and risk management
• Financial statement audits and reviews

Here's a checklist to help you prepare the necessary information for your Form 990:

By understanding what a Form 990 reveals, you can ensure that your organization is transparent and accountable to funders and stakeholders.

How do funders use a Form 990?

Funders use a nonprofit's Form 990 as part of the grant application process to assess the organization's financial health, governance, and compliance with tax laws. This information helps funders make informed decisions about awarding grants. What funders look for in a Form 990:

• Financial stability and sustainability
• Effective governance and leadership
• Compliance with tax laws and regulations
• Transparency and accountability
• Alignment with the funder's mission and goals

Funders review the Form 990 to:

• Evaluate the organization's financial management and budgeting practices
• Assess the effectiveness of the organization's governance structure and leadership
• Identify potential risks or areas of concern
• Determine the organization's level of transparency and accountability

Here are some key areas funders focus on when reviewing a Form 990:

By reviewing the Form 990, funders can gain a deeper understanding of a nonprofit's financial health and governance practices, which helps them make informed decisions about awarding grants.

Preparing a strong Form 990

To prepare a strong Form 990, follow these best practices:

Organize Your Financials

• Keep accurate and detailed financial records throughout the year.
• Ensure all financial transactions are properly documented and supported.
• Use accounting software to streamline financial management and reporting.

Complete the Form 990 Accurately and Timely

• Review the Form 990 instructions and IRS guidelines carefully.
• Ensure all required schedules and forms are completed accurately and on time.
• Use the Form 990 checklist to verify completeness.

Highlight Your Organization's Strengths

• Emphasize your organization's mission, goals, and achievements.
• Highlight any notable programs, services, or partnerships.
• Provide clear and concise descriptions of your financial activities.

Address Potential Weaknesses

• If your organization has faced financial difficulties, provide a clear explanation.
• If you have outstanding debts or liabilities, disclose them accurately.
• If you have been involved in any controversies or disputes, address them transparently.

Checklist: Preparing a Strong Form 990

• Have I kept accurate and detailed financial records throughout the year?
• Have I reviewed the Form 990 instructions and IRS guidelines carefully?
• Have I completed all required schedules and forms accurately and on time?
• Have I highlighted my organization's strengths and achievements?
• Have I addressed any potential weaknesses or controversies transparently?

Tips for Completing Schedules and Forms

By following these best practices and tips, you can prepare a strong Form 990 that showcases your nonprofit's strengths and addresses potential weaknesses, helping to build trust and credibility with funders.

Common mistakes to avoid

Preparing a Form 990 can be a complex and time-consuming task. However, making errors or oversights can have serious consequences, including delayed funding or even loss of tax-exempt status. Here are some common mistakes to avoid when preparing your Form 990:

Incorrect or incomplete information

• Ensure all required information is provided, including the organization's name, address, and EIN.
• Double-check the accuracy of financial data, such as income and expenses.
• Verify that all assets and liabilities are reported correctly.

Missing or incomplete schedules

• Review the Form 990 instructions to ensure all required schedules are completed.
• Schedules such as Schedule A (Public Charity Status and Public Support) and Schedule B (Schedule of Contributors) are often overlooked.
• Ensure all schedules are completed and attached to the Form 990.

Late or incomplete filing

• Familiarize yourself with the Form 990 filing deadlines and requirements.
• File Form 990 electronically, as required, through an IRS-approved e-file provider.
• Ensure all required information is provided and all schedules are completed.

Failure to disclose related-party transactions

• Review the Form 990 instructions to ensure all related-party transactions are reported.
• Disclose any transactions between the organization and related parties, such as board members or employees.
• Ensure all related-party transactions are reported and disclosed.

Checklist for avoiding common mistakes

By avoiding these common mistakes, nonprofits can ensure their Form 990 is accurate and complete, reducing the risk of delayed funding or loss of tax-exempt status.

Action steps: using your Form 990 to attract funders

When preparing your Form 990, consider how to present your organization's strengths and address potential weaknesses to attract funders. Here are some action steps to take:

Highlight your nonprofit's strengths

• Review your Form 990 and identify areas where your organization excels, such as:

• Financial management and transparency
• Program effectiveness and outcomes
• Governance and leadership
• Community engagement and partnerships

• Emphasize these strengths in your Form 990 narrative, using clear and concise language to highlight your organization's achievements.

Address potential weaknesses

• Identify areas where your organization may need improvement, such as:

• Financial management and compliance
• Program evaluation and assessment
• Governance and leadership succession
• Community engagement and outreach

• Develop a plan to address these weaknesses and include it in your Form 990 narrative, outlining steps your organization will take to improve in these areas.

Showcase your Form 990 online

• Consider posting your Form 990 on your organization's website, making it easily accessible to potential funders.
• Use clear and concise language to explain the contents of your Form 990 and highlight your organization's strengths.

Prepare a summary of your Form 990

• Develop a brief summary of your Form 990, highlighting your organization's key strengths and areas for improvement.
• Use this summary to support grant proposals, reports, and other fundraising materials.

Checklist: Preparing your Form 990 for funders

By following these action steps, you can use your Form 990 to attract funders and demonstrate your organization's commitment to transparency and accountability.

Conclusion and next steps

Nonprofits can benefit from a well-prepared Form 990 by attracting funders and demonstrating transparency and accountability. To take the next steps, follow these key takeaways:

Review and revise your Form 990

• Identify areas for improvement in your Form 990 and revise accordingly
• Consider consulting with a professional or seeking guidance from a non-profit organization like the National Council of Nonprofits
• Update your Form 990 to reflect changes in your organization's financial situation, governance, and programs

Make your Form 990 accessible

• Publish your Form 990 on your website to increase transparency and accessibility
• Consider providing a link to your Form 990 on your website's homepage or in a prominent location
• Make sure your Form 990 is easily searchable and downloadable

Communicate with funders

• Highlight the strengths of your Form 990 in proposals and grant applications
• Use your Form 990 to demonstrate your organization's commitment to transparency and accountability
• Consider providing additional information or context to help funders understand your organization's financial situation and governance

By following these steps, nonprofits can use their Form 990 to attract funders and demonstrate their commitment to transparency and accountability.

More questions and answers

Here are some common questions and answers about the Form 990 and its role in the grant application process:

Q: What is the deadline for filing a Form 990?

A: Form 990-series returns are due by the 15th day of the 5th month after the end of the organization's tax year (e.g., May 15 for a calendar year organization).

Q: Do I need to file a Form 990 if I'm a small nonprofit with little revenue?

A: Usually, yes. Organizations with gross receipts normally $50,000 or less file Form 990-N, a short e-Postcard. Don't skip it: an organization that doesn't file a required return or notice for three consecutive years automatically loses its tax-exempt status.

Q: Can I file a Form 990 electronically?

A: Yes, the IRS allows electronic filing of Form 990. Forms 990 and 990-EZ must be filed electronically through an IRS-approved e-file provider; Form 990-N is filed online at IRS.gov.

Q: Do I need to have a CPA or accountant prepare my Form 990?

A: No, you don't need a CPA or accountant to prepare your Form 990. However, having a professional prepare your Form 990 can help ensure accuracy and completeness.

Q: Can I get an extension to file my Form 990?

A: Yes, you can request an automatic 6-month extension to file your Form 990 by submitting Form 8868, Application for Extension of Time To File an Exempt Organization Return. The extension doesn't apply to Form 990-N.

Q: What if I'm missing information or have questions about the Form 990?

A: You can contact the IRS Exempt Organizations Customer Account Services at (877) 829-5500 or visit the IRS website for guidance and resources.

Q: How long does it take to prepare a Form 990?

A: The time it takes to prepare a Form 990 can vary depending on the complexity of the organization's financial situation. However, here's a rough estimate of the time it may take:

Keep in mind that these are rough estimates, and the actual time it takes to prepare a Form 990 may be shorter or longer depending on your organization's specific needs.

FAQ