How to Prepare Form 990 for Your Nonprofit
TLDR
Form 990 is the annual information return that most tax-exempt organizations must file with the IRS. Preparing it requires clean financial data, proper functional expense allocation, and accurate program descriptions. Organizations with gross receipts under $200K and assets under $500K may file the shorter 990-EZ. Churches are exempt but may file voluntarily.
Why Form 990 matters
Form 990 is publicly available. Donors, grantors, journalists, and watchdog organizations like GuideStar and Charity Navigator use it to evaluate your organization. A sloppy or incomplete 990 raises red flags. A well-prepared 990 builds trust.
Beyond public perception, the IRS uses 990 data for compliance monitoring. Inconsistencies between your 990 and your audited financial statements can trigger correspondence or examination.
Step 1: Determine which form to file
The IRS offers three versions based on organization size:
990-N (e-Postcard): For organizations with gross receipts normally $50,000 or less. Filed electronically. Takes about 10 minutes.
990-EZ: For organizations with gross receipts under $200,000 and total assets under $500,000. Shorter than the full 990 but still requires financial detail.
990 (Full): Required for organizations exceeding the 990-EZ thresholds. The full form is 12 pages plus schedules.
990-PF: Required for all private foundations regardless of size. Different format than 990 with foundation-specific sections.
Step 2: Gather financial data
Start with your year-end financial statements. If your organization has an audit or review, use those figures as the foundation. Your 990 numbers should match your audited statements.
Pull together: total revenue by source, expenses by natural classification and functional allocation, beginning and ending net asset balances, list of officers and directors with compensation, and descriptions of your three largest programs by expense.
Step 3: Statement of revenue
Part VIII requires revenue broken down by category. The categories don’t map perfectly to most nonprofit charts of accounts, so some translation is needed. Common categories: contributions and grants, program service revenue, investment income, rental income, and special event revenue.
Step 4: Statement of functional expenses
Part IX takes the most preparation time. Every expense must be allocated to program services, management and general, or fundraising. Joint cost allocations (a mailing that’s part fundraising, part educational) require documented allocation methodologies.
Your accounting software should track functional expense classification throughout the year. If it doesn’t, you’ll be doing this allocation manually during 990 preparation.
Step 5: Balance sheet
Part X reports assets, liabilities, and net assets at the beginning and end of the year. Net assets must be split between those with donor restrictions and those without.
Fund accounting software produces this split natively. QuickBooks requires manual calculation.
Step 6: Governance and compliance
The narrative and governance sections require information beyond your accounting records. Gather board meeting minutes, conflict of interest policies, whistleblower policies, and document retention policies. List all officers, directors, and key employees with their compensation.
Organizations often make errors in these sections by rushing or providing incomplete information. Budget time for them.
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- Form 990
- The annual information return required of most tax-exempt organizations by the IRS. It reports financial activity, governance practices, and compensation. The public version of the 990 is available to anyone who requests it, making accuracy essential.
DEFINITION
- Restricted funds
- Donations or grants designated by the donor or grantor for a specific purpose. Restricted funds cannot be spent on general operations without violating the restriction. Fund accounting software enforces these restrictions automatically.
DEFINITION
- Unrestricted net assets
- Funds available for any organizational purpose. On the Form 990, unrestricted and restricted net asset balances must be separately disclosed. Organizations using QuickBooks often struggle to produce this split without manual adjustments.
DEFINITION
- FASB ASC 958
- The accounting standard governing financial reporting by nonprofit entities. It requires presenting financial statements by net asset class (without donor restrictions vs. with donor restrictions) and disclosing restrictions on net assets.
DEFINITION
Q&A
What financial statements does Form 990 require?
Form 990 requires a Statement of Financial Position (balance sheet), Statement of Activities (income statement), and Statement of Functional Expenses for Part IX. Organizations must also disclose net assets by class — without donor restrictions and with donor restrictions. Fund accounting software produces these statements automatically from your chart of accounts.
Q&A
How do I track restricted funds for Form 990?
Fund accounting software tracks each restricted grant or designated fund as a separate sub-ledger with its own balance. At year-end, you pull a fund balance report showing all restricted balances, release-of-restriction transactions, and year-end net asset totals. This feeds directly into the Form 990 net asset disclosures without manual reconciliation.
Q&A
Can I prepare Form 990 myself or do I need a CPA?
Organizations with simple structures and accurate records can prepare Form 990 themselves. The IRS provides free e-filing through authorized providers. However, organizations with restricted funds, unrelated business income, or budgets over $1M typically benefit from CPA review. The most common preparation errors come from inaccurate fund accounting records — if your fund balances are clean, preparation is straightforward.
When is Form 990 due?
What happens if a nonprofit doesn't file Form 990?
Do churches have to file Form 990?
Want to learn more?
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