What is Form 990-EZ?
Think of Form 990-EZ as a financial check-up for smaller charities and non-profits. It’s like a slightly simpler version of the more comprehensive Form 990 that larger organizations use. These forms are designed to keep everyone honest by showing where the money is coming from and where it’s going. It’s a key part of maintaining trust with the public. If you’re involved with a tax-exempt organization, understanding Form 990-EZ might just be on your to-do list!
Who Uses Form 990-EZ?
Not every tax-exempt organization has to file the 990-EZ. It’s mainly for those that are relatively small. The IRS requires tax-exempt organizations to file this form if they:
- Have gross receipts that are normally not more than $250,000, and
- Have total assets at the end of the tax year that are less than $500,000.
It is important to note that ‘normally not more than’ does not simply mean the number they earned in the immediate past year. This is calculated using an average of the previous 3 tax years that they have been in existence.
If your organization is bigger than this, you’ll likely be filing the full Form 990, which requires more details. If you’re smaller than a specific threshold (generally gross receipts of $50,000 or less), you might be able to file an e-postcard, which is form 990-N.
What Types of Organizations Use Form 990-EZ?
This short form is used by a variety of tax-exempt organizations. Here are a few common examples:
- Small charities: Local food banks, animal shelters, and small foundations often fall into this category.
- Community groups: Neighborhood associations, small clubs, and volunteer groups may use this form.
- Religious organizations: Some smaller religious groups, excluding churches, may file the 990-EZ. This often includes religious organizations that are not classified as churches. For example, if an organization is associated with a church or a religious movement, but isn’t a church, it might be required to file.
- Other Non-Profits: Any non-profit organization, like a youth sports association, that meets the revenue and asset tests.
What Information is on Form 990-EZ?
The Form 990-EZ asks for key financial details. Here’s what you can expect to find on the form:
- Summary: This is where basic organizational information like the name, address, and employer identification number (EIN) go. It also summarizes revenue, expenses, and net assets.
- Revenue Details: This section asks about where the organization got its money. This includes things like:
- Contributions, gifts, and grants received.
- Revenue from special events.
- Program service revenue
- Investment income.
- Expense Details: This part of the form outlines how the organization spent its money. It includes:
- Program service expenses (what they spend to fulfil their mission).
- Management and general expenses.
- Fundraising expenses.
- Balance Sheet: This is a snapshot of the organization’s assets, liabilities, and net assets at the end of the year.
- Compensation Information: This section includes information on compensation to the highest paid employees, independent contractors and Board members.
A Closer Look at Revenue Reporting
When you’re filling out the Form 990-EZ, accurately reporting your organization’s revenue is vital. Here’s a bit more detail:
- Contributions and Grants: Make sure to separate gifts from grants. Contributions are generally given without expecting specific services in return, while grants often come with specific conditions.
- Special Events: If your organization hosts events, you need to report the gross revenue and also the expenses. You should only be reporting the net profit for such events.
- Program Revenue: This is the money directly earned through your activities or mission of the organization. For example, a food bank would report in kind donations as contributions, but would report fees charged by clients for their services as program revenue.
- Investment Income: This is income from investments such as interest, dividends, and rent received.
A Closer Look at Expense Reporting
Accurately recording and reporting expenses is as crucial as reporting revenue. The IRS needs to know how tax-exempt funds are being used.
- Program Services: These are the expenses that directly support your organization’s exempt purpose. This is the most critical category as it reflects your organization’s mission in action. An animal shelter would list expenses for animal care, adoptions and rescues here.
- Management and General Expenses: These are the costs associated with running the organization overall. Things like rent, utility costs and insurance premiums are listed here.
- Fundraising Expenses: These costs are related to generating contributions, grants, and donations. This would include costs for direct mail campaigns, or any other marketing, that’s intended to bring in revenue.
- Compensation: Expenses related to compensation must be listed separately from other expenses.
Important Deadlines and Filing Procedures
Okay, so you’ve determined your organization needs to file Form 990-EZ. Now what?
- Filing Deadline: The deadline for filing Form 990-EZ is the 15th day of the 5th month after the end of your organization’s accounting period. For organizations that use the standard calendar year, the deadline is May 15th. If your organization’s accounting year is not aligned with the calendar year, your deadline would be 4 and a half months after the end of that accounting year.
- Filing Options: You can submit Form 990-EZ electronically or on paper, although electronic filing is often recommended. Always double-check the IRS rules because some organizations above a certain size may be required to file electronically.
- Penalties for Late Filing: Late filing can result in penalties that can increase over time. If you know you are going to file late, consider filing Form 8868 to apply for a 6-month extension.
Why Is Form 990-EZ So Important?
Form 990-EZ isn’t just paperwork. It’s a way to be transparent. This is how tax-exempt organizations show they are using their funds responsibly. This public disclosure of financial activities is essential for building trust with donors, the public, and the IRS. Plus, if you don’t file it, the IRS can revoke your tax-exempt status. That’s something you certainly want to avoid.
Common Mistakes and How to Avoid Them
It’s not uncommon for organizations to make some mistakes when completing Form 990-EZ. Here are some common pitfalls and how to steer clear of them:
- Miscalculating Revenue and Expenses: Don’t rush. Double-check your numbers. Incorrect revenue or expense details can trigger IRS scrutiny. Review your bank statements, donation records, receipts, and accounting records carefully.
- Incorrectly Classifying Expenses: Always ensure that expenses are placed in the correct category. Program costs should be classified differently from administrative or fundraising costs. This is important for clarity and for ensuring the organization is properly fulfilling it’s mission.
- Missing the Deadline: Mark it in your calendar, set reminders, whatever works. Late filings are a hassle and can cost you money. Set up a filing schedule ahead of time, and plan to file well in advance of the due date.
- Not Keeping Good Records: Good record keeping makes filing a lot easier. So, before you start, make sure you have all of your receipts, bank statements and other financial documents organized. You might also want to invest in accounting software, or a consultant, to make this process as easy as possible.
Related Concepts
Let’s touch on some other terms that are relevant to Form 990-EZ:
- Form 990: This is the full-length version of the tax return for larger non-profits. Think of it as the big brother of Form 990-EZ.
- Form 990-N (e-Postcard): This is an even simpler form for the smallest tax-exempt organizations. It is designed for smaller organizations with gross annual receipts that are $50,000 or less.
- Tax-Exempt Status: This refers to the legal status of an organization being exempt from federal income tax under the Internal Revenue Code.
- Public Charity vs. Private Foundation: There are different rules that apply depending on whether the organization is a public charity or a private foundation. Public charities are typically organizations that receive broad public support. Private foundations typically have a single source of funding, such as a family or an endowment.
Tips for Filing Form 990-EZ
- Stay Organized: Maintain clean and accurate records throughout the year. Having good bookkeeping habits will make filing easier.
- Seek Professional Help: Don’t hesitate to seek help from a professional if you are not sure of how to complete the filing. A tax professional can provide personalized advice and ensure you remain compliant.
- Use Accounting Software: Leverage accounting software to track revenue and expenses throughout the year.
- File Early: Give yourself plenty of time to file. Avoid the rush and risk of missing the deadline. This also ensures that any errors that may be present can be caught and addressed.
By understanding Form 990-EZ, you’re playing a crucial role in maintaining the integrity of tax-exempt organizations. It’s not just about filling out a form, it’s about ensuring these groups continue to do good in the community with transparency and accountability.