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Nonprofit Tax Filing: Best Practices for Busy Professionals

Unlike your for-profit counterparts, your 501(c)(3) doesn’t have to pay taxes, which is a huge asset to your fundraising efforts. However, to stay exempt, you do need to file one type of IRS Form 990, which can be a significant undertaking for nonprofit professionals. 

Fortunately, by adhering to some best practices and tips, you can work smarter, not harder, and streamline your tax filing process. Let’s explore some savvy tricks to make filing Form 990 a breeze and free up your time to pursue what matters most: your mission. 

Basic Nonprofit Tax Terms

Before we jump into our tax filing tips, ensure you know the basic terms of nonprofit tax management:

Form 990 is a form all nonprofits must fill out each year to maintain their tax-exempt status. There are different types of Form 990 that nonprofits fill out according to their gross receipts; Form 990-EZ, Form 990-N, and 990-PF are the most important to keep in mind. 

Gross receipts are the total revenue received by a nonprofit during a fiscal year. This is the main determinant of which type of Form 990 a nonprofit can file. 

E-filing is the practice of completing and submitting your Form 990 through an online platform. According to File 990, the IRS strongly recommends (and requires in some instances) nonprofits to e-file their tax forms with an authorized provider to avoid delays and ensure form accuracy.

Authorized providers are software solutions that facilitate the tax filing process by securely submitting completed forms to the IRS. It’s crucial to only use authorized providers to avoid fraudulent activity.   

Now that you know the essential terms, let’s dive into the best practices.

1. Understand IRS compliance guidelines.

Start off on the right foot by becoming an expert in IRS compliance guidelines. The most important factors to keep in mind are: 

Form 990 due date. Generally, the due date for filing Form 990 is the 15th day of the 5th month after your nonprofit’s tax year ends. For calendar year filers, this is typically May 15th of the following year, whereas with fiscal year filers, this is usually November 15th of the same year.

Type of Form 990 required. Calculate your gross receipts well in advance so you know how much time you’ll have to spend filing Form 990. 

Nonprofit eligibility requirements. To qualify for tax-exempt status, your organization must have a mission, operate exclusively for exempt purposes, refrain from political activities, and have a dissolution clause in case the organization disbands.

If you adhere to these requirements, your organization will maintain good standing with the IRS and retain 501(c)(3) benefits.

2. Stay vigilant year-round.

While tax season is a few months long, that time can fly by — and you don’t want to miss the filing deadline because you were scrambling to get organized. That’s why it’s crucial to maintain your financial data year-round.

The best way to keep your financial data management in top form is to adopt data hygiene standards across your nonprofit. NPOInfo suggests standardizing data formatting and establishing a schedule for CRM data management.

It might seem time-consuming to prepare for tax season all year, but ultimately, a large amount of work spread out over a year can decrease stress as your filing deadline approaches. 

3. Choose the right e-filing software.

Your e-filing platform can make or break your success during tax season, so researching the options and picking the best platform for your nonprofit is critical. Some helpful features to keep in mind include:

User-friendly interface. Having a dedicated accountant for Form 990 isn’t the best option for all nonprofits, which is why using a platform with an intuitive and accessible user interface for beginners is crucial. 

Comprehensive form coverage. Ensure your chosen solution is built with nonprofit tax needs in mind and can support all Form 990 variants.

Data filling. Some tax form information carries over from year-to-year, such as your EIN. Solutions with automatic data filling from previous forms can help you save time during the filing process.

Real-time error checking. Let’s face it: mistakes happen, and human error can severely jeopardize your tax-exempt status. The best e-filing solutions will automatically flag potential errors so nothing slips through the cracks.

Cost-effectiveness. Accounting and software can be expensive, so choose a comprehensive, nonprofit-specific solution within your budget so you can maximize your ROI.

To find the best option for your nonprofit, consider trying products with free demos or speaking with a customer service representative who can tell you more about a given platform. Ultimately, the perfect fit will save your nonprofit time, money, and headaches when it comes to delivering your forms.

Wrapping Up

Nonprofit tax filing shouldn’t be a sprint; instead, take it slow and steady, like a marathon. You’ll free up bandwidth during tax season, mitigate human error, and conserve attention for your mission-centric initiatives, all while reaping the benefits of tax exemption.