Nonprofit management software improves Form 990 processes

Nonprofit management software makes filing tax forms with the Internal Revenue Service much easier. Charitable organizations need to file each year, even though they are tax exempt. Without effective and accurate data tracking, this process could get dicey and organizations may be penalized monetarily.

According to TurboTax and the IRS website, religious organizations, churches and some political groups do not have to file Form 990s. The IRS Form 990 is the standard article nonprofits must complete and file each spring. However, even though these types of organizations do not need to file, they should still be aware of the transparency expected of not for profit groups and their funding.

Trib Total Media reported recently that many researchers are calling for the increased observation and display of nonprofit IRS filings. Tax-exempt organizations are currently flying far below the radar of IRS personnel in charge of completing audits due to extensive agency budgets cuts. This poses several issues, including third parties taking advantage of nonprofits and committing fraud.

"In addition to guarding against fraud, posting financial information on a nonprofit's website increases transparency and builds trust among donors."

Today, charitable organizations make up more than 10 percent of non-governmental jobs in the U.S. They account for $532.1 billion in wages among staff. In the past 10 years, the number of charities filing Form 990s with the IRS doubled to reach 1.1 million in 2013. There exists vast amount of funding that could be tinkered with in a damaging way.

Changes to the current system?
What many advocates suggest is mandatory online filing and the subsequent public posting of financial records on the Internet in the form of searchable data. Currently, if a nonprofit files electronically, the IRS posts an image of the data in a non-searchable format. This makes it hard to identify issues or inconsistencies.

There are several different forms a nonprofit could fill out, depending on its total assets and gross receipts. Total assets account for anything and everything the organization owns. Gross receipts refer to the entire amount of funding a charity received over the course of a fiscal year, before accounting for expenses or costs.

  • Form 990 – Nonprofits with gross receipts reaching over or equal to $200,000 and total assets over or equal to $500,000 file this form. 
  • Form 990-EZ – Organizations with gross receipts below the $200,000 mark and total assets below $500,000 should file this form.
  • Form 990-N – Only available online, this form is required for those groups with gross receipts under $50,000.
  • Form 990-PF – This is a form reserved for tax-exempt private foundations or not for profit organizations that have applied for tax exempt status and are still waiting on their application to go through. 
  • Form 990-T – Any income accrued that is unrelated to the mission and goals of the nonprofit must be reported with this form. 
Nonprofits need to know exactly which forms to file with the IRS to avoid penalty.

The type of information requested on each of these forms includes, of course, financial holdings, but also reports on activities completed and updates on personnel. Much of this is used to determine whether or not the charity deserves to retain their not for profit title. As TurboTax stated, organizations that spend too much of their earnings on governance salaries may lose their status if not enough money flows into the cause for which the group formed in the first place. 

Improve donor relationships
In addition to helping guard against fraudulent activity, posting financial information on a nonprofit's website increases transparency and builds trust among donors. It helps constituents to know where their funding went during the past year. Even if a ministry does not have to file with the IRS, it's important to distribute information to contributors on how the funds were spent. Sharing success stories is the best way to obtain and retain donors over time.