What Every Small Nonprofit Needs to Know About Form 990-N

What Every Small Nonprofit Needs to Know About Form 990-N

No matter how intricate or challenging it may be, ensuring tax compliance should be at the top of the checklist for every organization, and nonprofits are no exception!

While larger nonprofits with more members and volunteers may find it slightly easier to manage taxes, smaller nonprofits with limited resources may face challenges in preparing tax forms and meeting deadlines. In light of this, the IRS has established Form 990-N, a simpler and shorter tax return exclusively for small nonprofits across the U.S.

Let’s delve deeper into exploring who can file Form 990-N, the information reported, deadlines, and more.

A Closer Look at Taxation for Nonprofits

Before delving into Form 990-N, let’s first understand how taxation works for nonprofits. Unlike businesses, nonprofits enjoy certain advantages in taxation. Organizations that are structured and operated for charitable, educational, or other welfare purposes are granted exemption from federal income taxes. This exemption is not only advantageous for nonprofits but also for donors. How?

Contributions and grants made to exempt organizations are tax-deductible, incentivizing donors to contribute to nonprofits that have obtained tax-exempt status from the IRS.

Nonprofit Annual Filing Requirements

As mentioned earlier, obtaining tax-exempt status enables nonprofits to be exempt from income taxes. However, they are still obligated to fulfill certain guidelines and requirements established by the IRS to remain tax-compliant.

Each year, nonprofits that have obtained tax-exempt status must report their financial information, program service accomplishments, activities, and other pertinent details to the IRS. To do so, nonprofits must file a 990 Form.

There are different types of 990 forms available, and nonprofits must file the applicable one based on their gross receipts, assets, and funding sources.

Among all the 990 forms, Form 990-N is what the small nonprofits need to file to complete their annual filing requirement with the IRS.

Form 990-N: The Purpose and Filing Criteria

Form 990-N, also known as e-postcard, is an annual information return designed specifically for small nonprofits. Notably, it doesn’t have a paper form and can only be e-filed to the IRS.

Typically, Form 990-N can be filed by organizations that have gross receipts of $50,000 or less during the respective tax year. This also includes,

• Organizations in existence for a year or less with gross receipts ≤ $75,000
• Organizations in existence for 1 – 3 years with average gross receipts of ≤ $60,000 for each of the two years
• Organizations in existence for 3 years or more with average gross receipts of ≤ $50,000 for 3 preceding years

If the nonprofits fulfill any of these criteria, they can file 990-N. Notably, the nonprofits that are eligible to e-file 990-N can choose to file 990-EZ or 990 forms instead.

A Breakdown of Information Reported on Form 990-N

One major distinction between Form 990-N and other 990 forms is the level of detail they require.

In a 990, or 990-EZ form, the IRS requires the filing organization to report detailed information such as revenue, assets, expenses, liabilities, etc. These forms comprise numerous parts that nonprofits must precisely fill out to ensure they file a complete and accurate return. Also, there are a few Schedules available that the filers of these forms must include based on the data they report on the main form.

In contrast to this, 990-N doesn’t require a lot of information. There are no multiple parts or additional schedules. Small nonprofits can just provide the following information.

• Legal name and mailing address
• Employer Identification Number (EIN)
• The accounting period followed by the organization
• Other names of the organization, if available
• Details about the principal officer
• Organization’s website, if available
• Confirmation that the organization’s gross receipts are $50,000 or less
• Statement of termination (if applicable)

Deadline to File Form 990-N

Just like the other 990 forms, the deadline for filing Form 990-N with the IRS is the 15th day of the 5th month following the end of the accounting period, followed by the organizations. For small nonprofits that follow the calendar tax year, the due date to file Form 990-N is the 15th of May.

In case this deadline falls on a weekend or a federal holiday, then the organizations must submit their 990-N on the next business day.

Extension and Penalties

Small nonprofits must be aware that they don’t have the option of requesting an extension for their 990-N deadline using Form 8868. So, what happens if a small nonprofit fails to file 990-N within the deadline? Will they be subjected to penalties?

No! Actually, in contrast to the other 990 forms, failing to file 990-N on time doesn’t result in penalties. Instead, the IRS will send a reminder notice to the respective organization, prompting them to file their 990-N as soon as possible.

However, if the nonprofit fails to file 990-N for 3 consecutive years, then it will lose the tax-exempt status and become a taxable entity.

Conclusion

Whether a nonprofit is large or small, compliance with the 990 filing requirements is crucial. Smaller nonprofits are afforded some flexibility in the level of detail they report. However, they must use this advantage responsibly and follow the specified guidelines to maintain goodwill with both the IRS and the public.