When preparing your nonprofit IRS Form 990, key reporting elements must be included for proper preparation.
In our last blog we outlined the requirements for filing Form 990 with the IRS for nonprofit organizations and which form you need to file, depending on your organization’s public charity status and gross revenue. In this blog post, we will review the key reporting elements you must include if you are filing the complete Form 990.
Form 990 Available for Public Disclosure
Since your organization’s Form 990 is available for public disclosure, it is important to understand how the data will be reviewed in relation to your organization’s mission, programs, and finances. The 990, which must be made public, also provides an easy way for donors and other people interested in supporting a particular cause to find and evaluate the best charities to support. In effect, the 990 can be a public relations tool for a charity when care is taken to fill it out correctly and carefully.
An organization can clarify its mission on the 990 and detail its accomplishments of the previous year. A donor can find out where the group gets its revenue. A foundation can see just how sustainable the charity might be. A potential employee can know how well the nonprofit pays its top employees. And a potential board member can see who else is already on the board and what the charity’s cash reserves looks like.
All of that information and more can be found on the 990, making this form useful for anyone doing research on nonprofits. That fact makes it even more important that a nonprofit spend adequate time and energy to fill out their 990 carefully and on time.
Breaking Form 990 Into Its Parts
Part I of the 990 is a summary of your Revenues, Expenses and changes to Net Assets that is detailed in subsequent sections of the 990. You must have an accounting system that will allow you to easily extract this information. Otherwise, the preparation will be difficult, timely and expensive.
The revenue section, detailed in Part VIII lists revenue by the following three categories:
- Contributions, Gifts and Grants
- Federated campaigns – Contributions received through federated fund raising, campaigns such as the United Way, and revenue received from affiliated organizations.
- Membership dues – Revenue received from members dues
- Fundraising events – Revenue that is generated from attendance at fund-raising events, such as ticket sales, sponsorship, raffle proceeds.
- Related organizations – Revenue received from related or affiliated organizations.
- Government grants (contributions) – Contributions from federal, state or local governments that are considered to provide a direct benefit to the general public. These contributions are distinct from monies received from government contracts or fees for services, which are included in Program Service Revenue.
- All other contributions, gifts, grants – Contributions received directly from individuals and foundations.
- Program Service Revenue – Revenues received by an organization while charging for the services for which it received tax-exemption.
- This category includes investment income, rental income, sales of inventory, assets, gaming activities and other special fund raising net income.
Nonprofit Accounting Fundamentals
Your expenses are detailed in Part IX, Statement of Functional Expenses. Here, you must segregate your expenses into three categories: Program Service, Management and General, and Fundraising. We’ve covered the importance of using functional expense reporting in previous blogs, so once again, make sure your accounting system allows you to easily segregate all of your expense activity by functional area.
- Program Services Expenses – Expenses incurred by an organization while performing its tax-exempt activities.
- Management and General Expenses – Expenses related to the day-to-day operation of an organization. Included are items such as personnel, accounting, and legal services, general insurance, and office management.
- Fundraising Expenses – Costs of soliciting the contributions reported on the Direct Public Support, Indirect Public Support and Government Contributions revenue lines.
Part IV, Balance Sheet has the details an organization’s assets, liabilities and net assets. The Net Asset section is divided into three categories:
- Unrestricted Assets – assets currently available for an organization to fulfill its tax-exempt purpose.
- Temporarily Restricted Assets – assets currently available for use, but only for specific purposes indicated by the donor, or as part of an implicit promise by the organization.
- Permanently Restricted Assets – assets with donor-imposed restrictions that do not expire.
Once again, this section of the 990 requires the proper accounting software tools to enable you to segregate your net asset balances into one of the three categories for proper 990 reporting.
There are many other sections of the 990 that must be completed that detail your organizations program service accomplishments, list of officers, directors, trustees and key employees.
Purpose of the Nonprofit Form 990
A nonprofit’s 990 can provide valuable information for donors and grantors such as foundations, governments, and corporations. Since 990s are public documents and widely available, nonprofits should be diligent about filling them out correctly and filing them on time.
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