With April 15 right around the corner, it’s only natural that many people start thinking about filing a return. The same is true of organizations that are considered tax exempt; nonprofits still have to file IRS Form 990.
There is a large nonprofit presence in the Northeast Ohio region. It’s estimated that there are more than 15,500 nonprofits in the Cleveland metro area alone.
Just like personal income taxes, there are various forms a nonprofit can use, including Form 990, Form 990-EZ and Form 990-N. The version of the 990 used depends on the organization’s annual revenue and the assets from its most recent fiscal year.
Small nonprofits with less than $50,000 in annual revenue may usually file a 990-N. Nonprofits with an annual revenue less than $200,000 with assets less than $500,000 may use Form 990-EZ. Larger nonprofits with an annual revenue of $500,000 or more must use the longer Form 990. Nonprofits should always consult a financial advisor or tax professional before selecting a form.
“Form 990 is basically the annual tax return form for a nonprofit, tax-exempt organization,” says Bill Cope, senior manager at HW&Co. “But it also allows a tax-exempt organization to tell their story and to champion any of an organization’s accomplishments from the previous year.”
HW&Co. is a CPA and accounting firm headquartered in Cleveland with numerous clients in the nonprofit sector. Cope is a member of the HW Healthcare Advisors and HW Nonprofit Advisors groups. While he specializes in helping long-term care and intermediate care facilities with preparing and reviewing their Medicaid and Medicare cost reports, he also focuses on the review, supervision and preparation of nonprofit Form 990 tax returns for the vast majority of the firm’s tax-exempt clients.
“Most nonprofits benefit their local communities or region, and a lot of that information is available on Form 990,” says Cope. “But there are a lot of other takeaways as well, including what a nonprofit’s mission is, how it serves the community and what it has done to achieve its goals.”
Other times it could allow a nonprofit to show why it may not have been able to achieve its goals. Reviewing previous years of Form 990 can also show important trends, like potential donors or revenue streams that may be increasing or declining — which can help with strategic planning.
In an environment where funds, donations and revenue streams are tight or competitive, Form 990 is becoming increasingly important to benefactors to make sure donated funds are being properly allocated and spent. It not only shows what funds are coming in, but also reveals the increasing costs of goods and services that the nonprofit provides.
Form 990 also allows potential donors, future executive candidates or board members the ability to see if a nonprofit has the proper governance structures in place and is being managed effectively. And it gives current board members yet another layer of protection. Board members and management have to sign off on the proper disposal of assets or their distribution. Form 990 makes that easier.
But it’s not just about the numbers. Because donors may review a 990, it’s important for a nonprofit to include a narrative on the form that is told in a compelling way. That’s one reason Form 990 is actually becoming something of a marketing tool for a nonprofits.
“It’s a very effective way of looking back on the previous year,” says Cope. “And it’s usually easy to get an extension if you need more time. That basically gives a nonprofit the entire summer for a more detailed review of the previous year.”
