Remember when you first learned to drive a car? Driving for the first time, whether it was around the block on in busy traffic, can be daunting. That’s because tasks often seem overwhelming when you attempt them for the first time. You lack the experience to feel confident doing the job. You know you can make mistakes.
And who wants to make mistakes?
Being new to something doesn’t mean you don’t have the ability to one day master the task, it just means you don’t have enough experience yet. If you’re a newbie to filing taxes for your nonprofit, you may not know where to start. And you certainly don’t want to make mistakes that can affect either the short-term or long-term health of your organization.
Just like driving a car, mastering your nonprofit taxes starts with the basics. You want to drive your organization safely forward; you just might not know all the moving parts needed to gain momentum. But don’t fret. Nonprofit taxes can be a lot like driving. You don’t need to know how then engine works to get your car where you need it to go.
You need both the skills and the tools to handle the filing of your nonprofit taxes. We can help with both.
Nonprofit tax tools and tax software are your keys to making educated decisions about your tax filing for your nonprofit. By following a few simple guidelines, you can gain the experience you need to master the needs of your nonprofit when it comes to your financials and filing your taxes.
The first key is to know your own organization.
Your donors are unique, and knowing them well is essential to managing donations and, ultimately, to growing your nonprofit. Tracking and managing donations, grants, and gifts-in-kind can be a good way to monitor the growth of your organization year over year. Knowing your donors can also help you gauge where your areas of growth are coming from. Managing grants, individual donors, and gifts-in-kind are also where you’ll start when it comes to preparing your taxes, so keeping your ducks in a row will help you come tax time. Using a system for organizing receipts is good for your day-to-day business, your board of directors, and to make tax filing as easy and seamless as possible. Transparency, after all, is seen as a requirement of a nonprofit’s well being. Your donors will want to see that you are a good steward of their donation. Knowing your donors and keeping good records will help.
Tracking donations is important for other reasons, too, because the very first thing you need to know when filing your nonprofit taxes is using the correct form. In the nonprofit tax world, the correct form correlates directly to the size of your organization.
The second key is choosing the correct form for your nonprofit.
Tax software tools can help you organize your information, but you’ll first need to know which form to choose when it’s time to file. The four most common forms available for 501(c)(3) tax preparation are the 990-N, the 990-EZ, the full 990, and the 990-PF.
If the receipts for your nonprofit are less than $50,000 for the year, there is only one form you’ll need: Form 990-N. The 990-N, also known as the Electronic Notice or e-Postcard, is the simplest way to file taxes for your nonprofit. It’s only available online and requires only the most basic information about your 501(c)(3).
Learn more about the 990-N here.
If your charity has receipts greater than $50,000 for the year but less than $200,000, you may file the 990EZ. This form is only four pages long. Although it requires more information than the e-Postcard, you aren’t required to file the full 990.
Check out the 990-EZ here.
The Full Form 990
If your charity has receipts greater than $200,000 or has total assets of $500,000 or more, then you’ll need to file the full form 990. A few elements required on this form include a full executive organizational summary, a checklist of required schedules, details pertaining to governance, management, and disclosures, compensation paid to officers and employees, and a full statement itemizing revenues, expenses, balances, reconciliation of net assets, and financial statements and reporting.
Take a look and learn more about the Form 990 here.
If you are a private foundation, this is the only form you are able to use.
Learn more about filing as a private foundation here.
Here at File990, our software tools can make sure you stay on top of your tax filing needs for your nonprofit. We’ll help every step of the way.
The third key is to stay on task. Don’t procrastinate.
Arm yourself with information. The more you know about what you need to file, the better equipped you will be in making the right decisions for your nonprofit.According to the Internal Revenue Service, “the Form 990–N is due every year by the 15th day of the 5th month after the close of your tax year. You cannot file the e-Postcard until after your tax year ends. Example: If your tax year ended on December 31, the e-Postcard is due May 15 of the following year.” Once you know your deadline, you can work up to it without procrastination.
You’ve Got This!
Just because you’re new at something doesn’t mean you aren’t capable of learning. The best way to start is to roll up your sleeves and dig in. By getting to know your donor base and the donations you receive, choosing the right tax tools to help you through the process of everything from choosing the right form to gathering the right information for the form, and staying on task, you can effectively steer your charity toward success. Just like driving a car, you’ll soon be moving your vehicle forward with confidence and skill.