As a nonprofit professional, you know that every dollar counts when it comes to pursuing your mission. Fortunately, the government empowers nonprofits to achieve their goals by exempting them from paying taxes.
A lot of work goes into complying with IRS regulations and preserving your nonprofit’s tax-exempt status, namely filing your Form 990 or one of its variants. Gathering your physical documents and filling out your forms by hand adds an extra layer of challenges. However, e-filing technology can make preparing Form 990 straightforward and stress-free. Let’s explore everything you need to know about Form 990 and the benefits of filing online.
Understanding the basics of Form 990
Before we get into the nitty-gritty, you need to grasp the fundamentals of nonprofit taxes.
First, to be tax-exempt, your organization must be registered as a 501(c)(3) with the IRS. This means your organization operates to fulfill a social need and the primary officers don’t benefit financially from fundraising activities. To maintain your 501(c)(3) status, your nonprofit must file Form 990 or one of its variants each year. According to File 990, the types are:
- Form 990, which is filed by nonprofits with gross receipts of over $200,000.
- Form 990-EZ, which is filed by nonprofits with gross receipts between $50,000 and $200,000.
- Form 990-N, also known as the 990 postcard, is filed by nonprofits with gross receipts under $50,000.
- Form 990-PF, which is filed by all foundations regardless of financial status.
The forms vary in specificity and length. Some nonprofits who are eligible to file Form 990-EZ or -N choose to file the full form for financial transparency, but it’s up to the nonprofit’s discretion.
What is e-filing software and why should nonprofits leverage it?
Hiring a nonprofit accountant isn’t a feasible solution for all nonprofits. However, a certified e-filer is a software solution that allows you to fill out and submit your nonprofit tax forms electronically. The right solution is affordable and can store and autofill information your nonprofit filed in the past to expedite the process further.
Adopting any new software solution can seem overwhelming at first, but e-filing is worth the adjustment period. It’s the ideal way to file your nonprofit’s taxes because e-filing is:
- Accurate. From misplacing paper documents to entering information incorrectly, traditional filing can go awry in many ways. With a certified e-filer, you can rest assured that you’re submitting the correct information to the IRS.
- Efficient. Even the most organized nonprofits have to put significant effort and time into compiling and analyzing physical documents. However, e-filing allows you to save time for what really matters: your mission-critical initiatives.
- Affordable. The right e-filing solution should be user-friendly and affordable so your organization can be self-sufficient.
- Required. The IRS recognizes the value of e-filing technology and has made it mandatory for most types of nonprofits. Thus, you’ll maintain compliance with IRS regulations by using e-filing software.
- Convenient. Gone are the hours spent sifting through filing cabinets looking for a single document! E-filing software makes it easy to reference old records without wasting time looking for the information.
- Organized. According to NPOInfo, using data management software is a crucial part of maintaining your organization’s data hygiene. Keep your tax forms housed in one central and accessible location with e-filing software.
- Secure. The right e-filing software solution will encrypt your forms so only authorized parties can view your sensitive financial information.
- Fast. Did your Form 990 deadline sneak up on you? By using an e-filer, you can submit quickly, realize a speedy turnaround period, and ultimately avoid IRS fees and other penalties.
No matter your comfort with technology, your nonprofit will reap the long-term benefits associated with e-filing.
Getting started with e-filing
Now that you know the benefits of e-filing software, you might be wondering how to get started. With enough research, it’s simple to pick a platform. Follow these steps to kickstart your e-filing journey:
- Research the available options. Generate a list of e-filing solutions on the market. Only consider software that’s in your price range, has an IRS certification, and has features that support your specific needs.
- Book demos and free trials. Once you’ve determined your finalists, secure any free trials or discounts available to see which platform best fits your needs. Remember to reach out to customer support specialists throughout the decision-making process so you know all the relevant information for making a decision.
- Familiarize yourself and your team with the platform. You’ll reap the most value from the software if you’re entirely comfortable using all of its features. Leverage any included training resources from your software provider and ensure everyone can use the platform before fully integrating it into your daily workflow.
Choosing software is a big decision, but there are many resources available for your team to leverage to make the most of your chosen platform.
Best practices for nonprofit tax e-filing
Keep these general best practices for filing your nonprofit’s taxes in mind:
- Be aware of your deadlines. If you miss your filing deadline, your nonprofit jeopardizes its tax-exempt status and could lose valuable revenue. The deadline for most nonprofits is the 15th day of the fifth month after the end of your fiscal year. Submit your forms well in advance of that deadline to be safe!
- Practice data hygiene year-round. To have a smooth tax season, you need to do some work throughout the year to stay organized. Maintain your financial records and conduct regular audits to ensure you have everything you need to succeed come April.
- Keep tabs on changes to IRS guidelines. It always helps to be aware of any rollouts or updates from the IRS regarding nonprofit taxes. Check in with the website periodically to stay in the loop.
By implementing these best practices into your everyday practices, your nonprofit can maintain order and ensure your forms get delivered.
Wrapping Up
There’s no doubt that successfully submitting Form 990 secures your nonprofit’s bread and butter. Plus, it doesn’t have to feel like a high-stakes process! With an effective e-filing solution by your side, you can revolutionize how your nonprofit stores and leverages your financial data for years to come.