While we begin to celebrate the time period now fondly referred to as “pre-extension season,” a new deadline to keep in mind is Form 990, due on May 15. The form required by non-profit organizations is easily buried in the post-tax season rush to take a vacation. While Form 990 doesn’t carry income tax implications, the forms can be complex and lengthy to prepare.
Here are some tips to ensuring your 990s are prepared accurately:
1. Understand the organization’s activities and financial operations
Before beginning the preparation of Form 990, it is essential to have a clear understanding of the organization’s activities and financial operations. This involves reviewing the organization’s mission statement, programs, and financial statements to gain an understanding of its purpose, operations and sources of funding.
Not only is this information required to be disclosed on the form, but having a good understanding of the operation will also help you identify any potential unrelated business income, which merits additional filings by the non-profit.
2. Consider outsourcing if you’re unfamiliar
Form 990 is a complex document, and it is essential for tax preparers to be familiar with its various sections and requirements. The form consists of lengthy pages of disclosures and rules completely dissimilar to income tax returns. If you have clients that need to file a 990 and you are unfamiliar, it can be an expensive area to try to learn for only a small number of clients.
Consider outsourcing the preparation to a firm with more experience. A white label practice can prepare the documents for you without your clients feeling like they are going somewhere else to have the work done.
3. Get accurate records
To prepare an accurate Form 990, revenue has to be broken down into major program areas and even into major donors. Small nonprofits may struggle to keep this information tracked and well documented. Many very small organizations lack the accounting systems in place to track this information in the required categories.
Similarly, expenses must be reported by the program area. Even before quoting 990 preparation, it is recommended that you review the status of the books and ensure clients have access to the information needed for the Form.
4. Verify information with the organization
You may need access to board meeting minutes in addition to financial records. The board of directors is also required to review and vote to approve the filing of the Form before preparers submit them. This vote should be documented. If you don’t have a habit of presenting your 990s to the board, make sure you request the meeting minutes authorizing the filing before releasing the returns.
6. Stay up-to-date with changes
With lengthy disclosures, and the potential for many cumbersome additional schedules that may be needed, it is critical to stay on top of changes to ensure these forms are prepared accurately. It is highly recommended that any staff preparing 990s look for continuing education on an annual basis that addresses form changes and updates.
Failing to complete all required schedules is among the most common 990 mistakes, often made when the preparer doesn’t know the additional schedules are required.
Other common errors to keep in mind are failing to accurately disclose compensation for board members and key officers and not reporting unrelated business income. Preparers need to have a working knowledge of multiple areas of an organization in order to not miss these ancillary pieces of preparing the forms.
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