As an Executive Director of a nonprofit, you wear many hats — from overseeing day-to-day operations to ensuring your organization fulfills its mission. One crucial aspect of nonprofit management is handling financial transparency and compliance, which brings us to a key document: the IRS Form 990.
Form 990 is a vital tax document that provides the IRS, donors, and the general public with a snapshot of your nonprofit's financial health. It's more than just a form you file; it’s a reflection of your organization’s commitment to transparency and responsible stewardship of funds. In this post, we’ll explore the purpose of Form 990, common pitfalls to avoid, and how timely and accurate filing enhances your nonprofit’s reputation.
The Purpose of Form 990
Form 990 serves several purposes:
Transparency: It provides insight into how your nonprofit operates, including revenue sources, expenses, and compensation for key employees. This transparency builds trust with stakeholders, donors, and the community.
Accountability: Nonprofits are accountable not only to donors but also to the IRS and state regulators. Form 990 ensures your organization is complying with tax-exempt status requirements and adhering to financial reporting standards.
Public Disclosure: Form 990 is a public document, which means anyone can access it, from potential donors to the media. This can enhance or diminish your reputation depending on how well your financials are presented.
Donor Confidence: When prospective donors see that you are filing your 990 accurately and on time, they are more likely to trust you with their contributions. A well-prepared Form 990 demonstrates that your organization is well-managed and that funds are being used efficiently.
Common Pitfalls to Avoid
Filing a Form 990 may seem straightforward, but it’s easy to make mistakes. Here are some common pitfalls Executive Directors should be aware of:
Missing Deadlines: The IRS requires Form 990 to be filed annually by the 15th day of the 5th month after your organization’s fiscal year ends. Missing this deadline can lead to penalties and, in extreme cases, the loss of tax-exempt status.
Incomplete or Inaccurate Information: Form 990 requires a detailed report of your nonprofit’s finances, including revenue, expenses, and executive compensation. Failing to accurately fill out these sections can raise red flags with the IRS and may trigger IRS audits.
Not Updating Form 990 Regularly: If your nonprofit’s activities, programs, or financial circumstances change significantly, it’s important to reflect these updates in your Form 990. Outdated information can paint an inaccurate picture of your organization.
Omitting Key Disclosures: Nonprofits must disclose certain relationships, transactions, and compensation details. Failing to disclose conflicts of interest, related-party transactions, or excessive compensation can lead to serious consequences, including public distrust.
Neglecting to Review Form 990: Always ensure that your board members and other key staff review Form 990 before it’s filed. Having a fresh set of eyes can catch mistakes that might have been overlooked during the initial preparation.
How Timely and Accurate Filing Enhances Your Nonprofit's Reputation
Timely and accurate filing of Form 990 isn't just a legal obligation — it’s an opportunity to enhance your nonprofit’s reputation. Here’s how:
Building Trust with Donors: Donors want to be confident that their contributions are being spent wisely and being used to advance your mission. Filing Form 990 on time and with transparency shows donors that you are serious about accountability and good financial practices.
Strengthening Relationships with Funders: Government agencies, foundations, and other Grantmakers often require a copy of your Form 990 as part of the application process. By filing accurately and on time, you make it easier for funders to evaluate your financial health and program impact.
Increasing Public Trust: Because Form 990 is available to the public, it’s a prime opportunity to demonstrate the integrity and success of your organization. A well-prepared Form 990 can enhance your reputation in the community, leading to more donations and greater visibility. Take a proactive approach to address significant changes.
Avoiding Penalties: Filing late or incorrectly can result in costly fines and penalties, which could damage your nonprofit’s finances. Avoiding this will help preserve your resources for mission-driven activities rather than paying penalties.
Improving Board Governance: By preparing and reviewing Form 990 with your board members, you foster a culture of financial oversight and accountability. This strengthens the overall governance of your organization and helps ensure long-term sustainability. Additionally, disclosing relevant information about your board members reassures donors that you are accountable.
As an Executive Director, ensuring that your nonprofit’s Form 990 is filed accurately, on time, and in compliance with IRS guidelines is an essential responsibility. It’s more than just a tax form — it’s a powerful tool for fostering transparency, building trust with your stakeholders, and demonstrating your commitment to your nonprofit’s mission. Avoiding common pitfalls, staying ahead of deadlines, and embracing the review process will help you maintain a strong reputation in the nonprofit community.
Remember, a well-executed Form 990 is not just about avoiding mistakes. It’s about showing the world that your organization is transparent, trustworthy, and committed to making a difference. Take the time to get it right, and you’ll be investing in your nonprofit’s future for years to come.
Ready to Ensure Your 990 Filing is On Point?
At BryMar, we specialize in nonprofit audits, and our dedicated nonprofit team is here to ensure your organization remains compliant with all IRS requirements. While we don't offer stand-alone 990 services, we do provide comprehensive support by including 990 preparation as part of our audit process.
Our team of experts, focused solely on nonprofits, understands the unique financial needs of your organization. We are committed to being by your side throughout the year so you can rest assured that your Form 990 will be filed accurately and on time.
Contact us today to learn how we can help streamline your audit and 990 filing process, ensuring that your nonprofit remains in good standing while you focus on fulfilling your mission.