Your Nonprofit Tax Filing Duties Explained
Filing taxes of any kind involved complicated, convoluted procedures. Although you run a nonprofit organization, you still have some legal filing responsibilities.
Here is what we plan to discuss:
- What Is an Annual Information Return (AIR)?
- What Is the Purpose of the 990 Form?
- What Forms You Need To File
- Consequences of Filing Your Taxes Late
- Consequences of Not Filing Your Taxes
- Where Can I Get the Forms?
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What Is an Annual Information Return (AIR)?
In addition to compiling your nonprofit financial statements, filing your nonprofit annual information return (AIR) is part of the year-end requirements for nearly every charitable organization. But what is an AIR? An AIR is a document from the 990 series that discloses high-value financial transactions from the fiscal year.
There are several forms in the 990 series. Your nonprofit treasurer or accountant needs to do some research to determine which one aligns with the type of organization you are and the number of your gross receipts you manage.
What Is the Purpose of the 990 Form?
These documents have several purposes. They verify that charitable organizations and nonprofits conduct business in a transparent way. In addition, they ensure the tax-exempt status is not being abused as they record high-value transactions that organizations conduct throughout the year.
It requires information about payment for board members and staff as well as other accountability options to reduce the potential for nonprofit fraud. Eliminating these instances helps promote the positive nature of charities and prevents bad actors from tainting the values promoted through nonprofits.
Wondering what the purposes of 990 Forms are, Anthony? Keep reading!
Also, as it is a public document, it can help a donor evaluate which nonprofit to give their gift to. Individuals value transparency, so use this document as an opportunity to promote it by properly accounting for your donations.
Here are a few additional reasons 990s are useful:
You clearly declare your mission on this documentation for all potential supporters to see.
As you rationalize keeping your tax-exempt status, Schedule O of Form 990 offers a place to list the significant programs that you undertook during the year.
With your finances laid bare, donors can see how financially stable you are.
Pro Tip: Keep this report in mind throughout the year. Take notes along the way as you experience successes so that you remember to promote them when it comes time to file this form again. Think of the 990 as a way to memorialize these accomplishments in the hopes of drawing in new donor.
What Forms You Need To File
If you are wondering if a nonprofit make money, the answer is "yes." In fact, the 990 form you must fill out depends on how much income you are bringing in.
Pro Tip: Form 990 is not the only nonprofit accounting document to keep in mind. However, it is by far the most important one that pretty much all charitable organizations must provide. Check the IRS' website to see if your nonprofit needs 1099s or other forms as well.
Here are the types of 990 forms for exempt organizations.
If your organization or association has gross receipts totaling less than $50,000, you are typically eligible for the 990-N (e-postcard) option. Note that there are some types of organizations that are not eligible for this form even if they meet the gross receipts criteria. Users can access details on these organizations on the IRS website.
Matt is filing his 990-N online!
If you are eligible to file a 990-N, you may want to consider it. As it is shorter and filed online, it is a less complicated way to report your activities while still staying in compliance.
Even if you are eligible for the e-postcard, you can still choose to file the full return. There are several reasons that you may choose the full return. For example, maybe your nonprofit is undergoing an audit, and you have the more detailed financial information on hand already. Or, maybe you may want to be more transparent with your supporters by giving them more financial details. In the end, the choice is yours!
If your gross receipts come to less than $200,000 and you also have total assets that figure less than $500,000, this is the form you want, although you also may optionally fill out a standard 990 for this range as well.
If your organization falls into this gross receipts range, you still need to file the yearly form to maintain your tax exemption but the 990-EZ (or the Form 990 “lite” version) will suffice.
For organizations with gross receipts greater than $200,000 or your asset count is greater than $500,000, the standard 990 annual information return is the correct choice.
Regardless of the monetary amount of your receipts, if you are working for one of the many private foundations, such as some charitable trusts, this is the option for you.
Who Doesn’t Have To File AIRs With the IRS?
Any nonprofit organization that has been incorporated but does not have tax-exempt status is not required to file an AIR. There are some exceptions to this rule, though. For example, the accounting principles for church-affiliated organizations are different. Here is a full list of the organizations that fall under this exemption.
Pro Tip: Be sure to check your local filing requirements as well. There very well may be other required forms within your state. Your state's website is your best resource to learn about these requirements, but here is a general overview of nonprofit state filing requirements as well.
Consequences of Filing Your Taxes Late
"Late" is any extension granted or without a reasonable cause for tardiness.
Gross Receipts Less Than $1,000,000: If your taxes are not in before the due date, the Internal Revenue Service will charge a penalty of $20 for each day that you are late on your return. This continues until it reaches a maximum of either $10,000 or 5% of your organization’s gross receipts, whichever is the least.
Gross Receipts More Than $1,000,000: In this situation, the penalty is actually $100 a day to a maximum of $50,000.
Consequences of Not Filing Your Taxes
Failing to file the necessary forms with the IRS for three consecutive years will unfortunately really derail your organization from fulfilling its mission. Your nonprofit will automatically lose its tax-exempt status, effective on the date on which the third annual return was due.
You'll be looking like Eva if you don't file your taxes! Luckily,
you're reading this article to prepare!
Luckily you read this article and are on top of your taxes already! But, If that were to happen, your nonprofit would no longer enjoy exemption from sales tax, and you may need to file one of these income tax returns instead:
Form 1120 - US Corporation Income Tax Return
Form 1041 - US Income Tax Return for Estates and Trusts
There may also be additional penalties that you face as a result of failing to pay these taxes, although nothing is specified by the IRS.
In order to regain your tax-exempt status, you would have to file a new application.
Pro Tip: Regardless of the form you must file, nonprofit accounting basics say that the form is due each year no later than the 15th day of the fifth month of when your tax year closes. So, if your tax period ends on December 31st, your due date is May 15th.
Once you determine the due date, add it to your calendar. Set reminders throughout the weeks leading up to it so that you do not forget about it.
Where Can I Get the Forms?
As the IRS is the entity that requires these forms, check its website first for 990-series templates and instructions.
If you want to see examples of what these forms look like filled out, you can register for a GuideStar or Candid account. This database keeps these records on file. They are mostly there to inform potential donors and other types of supporters, but there is no reason that you cannot also take advantage of them. The IRS has a similar tax-exempt organization search function as well.
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💡Does my nonprofit need to file a tax return?
Nonprofit organizations are required to file an annual information return (990 forms). The type of form that your organization will need to file should align to the amount of gross receipts and type of organization. Find out more.
🔑 What taxes need to be filed for a nonprofit?
📝 What is the difference between Form 990 and 990-EZ?
A Form 990 is for organizations whose gross receipts are greater than $200,000 or their asset count is greater than $500,000. A Form 990-EZ is the opposite, for organizations whose gross receipts are less than $200,000 and their asset count is less than $500,000. Find out more.