Tax season is upon us, but if you’re a tax-exempt organization, what does that mean for you? Read our article about all the relevant information you need for filing as a nonprofit: 

Ah, tax day 2022! The day is coming soon, but you’re not worried. You run a nonprofit. So that means you don’t pay any taxes, and you don’t have to file with the IRS or panic about any of that nonsense, right?

Wrong! Nonprofits might be tax-exempt, but they are still required to file Form 990 every year on the 15th day of the 5th month after the end of the nonprofit’s fiscal year. For many nonprofits, this date falls on May 15th. Nonprofits must submit this form to the IRS every year to ensure they are operating properly and can keep their tax-exempt status (and their ability to receive tax-deductible donations).

While you must file Form 990 to avoid being fined or losing tax-exempt status, it’s also beneficial to nonprofits to file Form 990–and do a good job with it, too. This is because, if done well, 990 forms offer: 

• Transparency and helpful information for donors, and 
• a tangible, accessible document that describes the financial health of the organization.

Filing Form 990

The first step in filing Form 990 is figuring out which 990 form the IRS requires of your nonprofit. 990N, 990EZ, 990 Full, and 990PF are the different types of 990 forms, designed for nonprofits of varied sizes. 

• 990N is for nonprofits with yearly receipts under $50,000. 
• 990EZ is for nonprofits with yearly receipts under $200,000 and assets under $500,000. 
• 990 Full is for nonprofits with yearly receipts over $200,000 and assets over $500,000. 
• 990PF is for private foundations.

Having a 990 form completed with detailed information allows for transparency that donors will not only be able to refer to, but will also appreciate.

Accounting for your nonprofit: a little different

Nonprofits are a lot like for-profit businesses in that they are trying to raise money and succeed as a business. The ways they differ is the dollars they raise then go to serving a mission, rather than simply increasing revenue and sustaining the business. They also differ in the ways their finances are described, organized, and how they file with the IRS.

Statement of financial position, statement of activities, statement of functional expenses, and statement of cash flow are some nonprofit accounting terms that you’ll need to understand in advance. All of these are valuable insights for filing Form 990, but also in determining how the nonprofit is doing as a business and what future goals should look like.

Statement of financial position

A statement of financial position in nonprofit accounting is equivalent to a for-profit business’ balance sheet. It reflects how the nonprofit is doing at the current moment, reviewing all the nonprofit’s work or operations to date. It shows the nonprofit’s net assets, which amounts to anything the nonprofit owns (assets) minus anything the nonprofit owes (liabilities).

Assets and liabilities can be broken down further into types such as physical, non-physical, current, fixed, long-term, and more. When the assets are added and liabilities subtracted, the net assets describe the nonprofit’s equity. Net assets are categorized as restricted or unrestricted, depending on whether donors have placed any requirements on donated money or goods.

When legibly presented, a statement of financial position is super helpful for nonprofits to use in their marketing and donor relations and goal setting and decision-making for the future.

Statement of activities 

A statement of activities is the nonprofit version of an income statement, tracking revenue and expenses. Instead of looking at profit or loss, the statement of activities reveals changes in net assets. The statement of activities will cover different revenue streams, such as contributions, grants, investment revenue, or gain on the sale of investments. It will also cover program expenses, (and break this down into line item expenses relating to specific programs), and support services expenses for management and fundraising. Revenue and expenses will also be classified by restrictions.

This document is helpful for discerning how and why net assets have changed.

Statement of functional expense

This statement reports on the expenses of the nonprofit, classifying these into categories to further show how money is being spent. The main categories are program, management and general, and fundraising. Program expenses that go toward running programs, management, and general expenses cover administrative type costs–accounting being one of these, and fundraising expenses cover costs for marketing or other expenses involved in generating funds for the organization.

This document is helpful for determining where most of the nonprofit’s money and efforts are spent. 

Statement of cash flow 

A statement of cash flow shows how much available cash the organization has on hand. It reflects general operations on a monthly basis, with specific amounts of money coming in and out to keep things going. The statement of cash flow is broken down into operating activities, investing activities, and financing activities. The latter two deals with long-term asset purchases and investments, and money received from borrowing or repaying, while the former deals with all the rest.

This is a helpful way of knowing how bills and salaries will get paid and how other immediate cash needs will be met monthly.

Using your accounting info to file tax forms as a nonprofit

All these statements are invaluable tools for completing Form 990, which requires a holistic look at your nonprofit’s finances. The IRS wants to know how your organization is managing its money and any changes you have made to your operations.

Temple Management: your nonprofit tax season solution

We’re an accounting firm that serves many businesses, with a sweet spot for nonprofits and churches. Tax season can be confusing for nonprofits, and we’re here to help. We’ll get all your statements and other financial information in order and ensure you’re putting your best foot forward with a properly filed 990 form. 

We’re experienced and well-versed in dealing with nonprofits’ unique needs during tax season. Call us at (770) 892-2087 for a consultation about your nonprofit accounting or bookkeeping needs. We would love to assist you!