Tax-exempt status doesn’t mean a nonprofit skips the IRS. Even an organization exempt under Section 501(c)(3) usually must file a nonprofit tax return every year. Also, a nonprofit may still owe tax on income unrelated to its exempt purpose, and it must handle payroll taxes for paid staff.
Here is how to prepare a nonprofit tax return, step by step.
Step 1: Decide which nonprofit tax return you need
Most exempt organizations file a return in the Form 990 series. Which form you use depends mainly on your gross receipts and total assets:
- Form 990-N (e-Postcard): for small organizations whose gross receipts are normally $50,000 or less.
- Form 990-EZ: for organizations with gross receipts under $200,000 and total assets under $500,000.
- Form 990: for larger organizations above those limits.
- Form 990-PF: for private foundations, regardless of size.
Some groups, such as churches, are not required to file. For the full rules, see the IRS guide on which forms exempt organizations file.
Step 2: Gather your records
Before you start, collect your financial statements, bank records and board minutes. You will also need details on revenue sources, program expenses, compensation and grants. In addition, Form 990 asks about governance, such as conflict-of-interest policies.
Step 3: Fill out the return
For a small nonprofit, a board member or manager can often complete the return. However, larger or more complex organizations should work with an accountant who knows exempt organization rules.
Each form has detailed instructions. So read the instructions for every line to make sure you provide the right information. Keep in mind that Form 990 is a public document. Donors and grant makers often review it.
Step 4: File your nonprofit tax return on time
Today, organizations must file Form 990, 990-EZ and 990-PF electronically. Likewise, you submit Form 990-N online.
The return is due on the 15th day of the 5th month after your fiscal year ends. For example, if your year ends June 30, the return is due November 15. For a calendar-year nonprofit, it is due May 15.
If you need more time, file Form 8868 by the original due date. That gives you an automatic six-month extension.
Why filing on time matters
Late returns can bring penalties. Even worse, if an organization fails to file for three years in a row, it automatically loses its tax-exempt status. Then it must reapply to get it back.
Get help with your nonprofit tax return
We prepare Form 990 returns and help nonprofits stay compliant. To learn more, call (415) 842-2940 or book a free 15-minute call.