List of Tax Documents a Non-Profit needs to submit every year
Filing taxes and returns is an extremely time consuming process and can be complicated at times. One must file their taxes and return accurately on time. Failing to do so can result in heavy penalties. The same applies to Non-profit organizations as well. If you work for any Non-profit organization and are confused if the entity is supposed to file the tax or not, then this article is just for you.
Do Non-Profit organizations file taxes?
A Non-profit organization is one that engages in activities that benefit both the public and private sectors without seeking commercial or monetary gain.
Although section 501(c) of the Internal Revenue Service (IRS) tax code exempts Non-profit organizations from paying federal income taxes, Non-profit organizations are compelled to file an annual information return with the IRS, known as Form 990.
Your tax-exempt status must be ‘justified’ by your Non-profit organizations. In other words, a 501(c)(3) organization’s annual tax return shows the IRS that the organization is fulfilling its philanthropic mission.
This might seem illogical to you, but this is mandatory to eliminate any chances of forgery. Some people may try to take advantage of the tax-exemption status and get involved in illegal activities or open a business for tax pilferage. That is why Non-profit organizations are required to have an audit performed by an independent accountant.
Tax Documents that you need to submit
The documents that you need to submit while filing for information return are:
- Form 990
The IRS Form 990 is a type of tax return that offers a summary of a Non-profit’s financial activities, governance structure, and public-benefit accomplishments for the previous year.
Form 990 is a compliance report to the IRS that documents:
- Information on governance, evidence of decisions made, and written policies are provided.
- That your tax-exempt organization is following best practices and is staying within the limits of its tax-exempt mission.
- That your entity complied with all applicable federal tax laws, including payroll and information reporting, as well as unrelated business income taxes.
12 Parts of Form 990
PART I – It requires data about the organization’s activities and governance like the mission, the number of staff and volunteers. It also includes revenue, expenses, and net assets or fund balances. Part I is the summary of the organization.
PART II – Part II is the signature block, in which an officer of the organization certifies that the information is accurate, correct, and complete to the best of their knowledge.
PART III – It contains a summary of the organization’s achievements, its purpose statement and the costs and revenues for the three major programme services.
PART IV – It has a list of schedules that must be submitted together with the form.
PART V – It contains information on other IRS filings and tax compliance.
PART VI – It requests information about the governing body and management, as well as its policies.
PART VII – It includes the salary paid to the current and former officers, directors, trustees, important employees, employees receiving more than $100,000 salary, and up to five independent contractors earning more than $100,000 in payment from the organization.
PART VIII – It is a disclosure of the organization’s revenue from connected or exempt funds and related business income, which requires the submission of Form 990-T, and this income is not exempt.
PART IX – It is for the organization’s expenses to be reported.
PART X – It is a reconciliation of the organization’s net assets.
PART XI – It outlines the financial statements and reporting of the organization.
The organization may be required to attach multiple schedules to give extra information. Based on the responses to the questions throughout the form, the organization can determine which schedules they are required to employ. Schedule O is one of the most common schedules used by organizations to submit supplemental information to Form 990.
Is it necessary for every Tax-exempt organization to file a Form 990?
With a few exceptions like religious organizations and churches, most organizations are required to submit a Form 990, however, the type of form required varies depending on the organization’s annual revenue and assets.
- If the organization’s gross revenue is less than $50,000, Form 990-N, commonly known as the e-Postcard, will be filed.
- Organizations with a gross income of $50,000 or more but less than $200,000 in assets will file Form 990-EZ, a simplified version of Form 990.
- The longer Form 990 will be filed by organizations with $200,000 in revenue or $500,000 in assets. organizations with revenues of more than $10 million must electronically file their returns with the IRS using “e-file”.
- An organization that has $1,000 or more in gross income from unrelated business activities to its mission and are carried on on a regular basis, whether or not it reports a profit from the unrelated business, must file Form 990-T yearly in addition to Form 990. It is applicable for Non-profits that file Forms 990, 990-EZ, or 990-N.
Several organizations fail to record taxable income. Organizations who fail to disclose or underreport UBI, whether purposefully or accidentally, may face severe fines.
If you fail to file IRS form 990 on the due date could result in penalties of up to $20 per day assessed by the IRS. If your information is correct and complete, only then it is considered filed.
What happens if information on your tax return or Form 990 is incorrect or missing?
If you fill out the wrong form 990 or miss some of the information in the form, you will receive:
- IRS Letter 2696C (Missing Information Request to Process EO Return)
- IRS Letter 2694C (Return Form 990 due to missing information)
- IRS Letter 2695C (Return Form 990-EZ due to missing information)
If your organization receive any of these letters from the IRS, your organization have ten days to rectify your error.
If you failed to file the required information return for 3 consecutive years, the IRS will place your organization in the Auto-Revocation List, and IRS will revoke your tax-exempt status.
Revocation clearly means that your organization will no longer have tax-exempt status. After the revocation, your organization will be chargeable with federal income tax and state income tax on annual income.
Filing returns and taxes are important, even if you are a non-profit organization. Though non-profit organizations come under tax-exempt status, they are compelled to file an information return accurately, disclosing all the requested information.