How to File Taxes for a Nonprofit: Form 990, Deadlines, and Penalties

To file taxes for a nonprofit, you submit one of the Form 990 series annual information returns to the IRS by the 15th day of the fifth month after your fiscal year closes. Which form you file depends on how much money moved through your organization and what it owns. Most tax-exempt groups owe no income tax on their exempt work, but the return is still mandatory, and skipping it for three years in a row ends your exemption automatically.

Pick the Right Form for Your Size

Before anything else, you need two numbers from your books: gross receipts (everything you took in from all sources, before subtracting expenses) and total assets at year end. Those numbers decide your form.

When It Is Due and How to Get More Time

The return is due on the 15th day of the fifth month after your fiscal year ends.4Internal Revenue Service. Annual Exempt Organization Return Due Date If you use a calendar year, that is May 15.5Internal Revenue Service. Exempt Organization Filing Requirements – Form 990 Due Date

Need more time? File Form 8868 before the original due date and you get an automatic six-month extension, no explanation required.4Internal Revenue Service. Annual Exempt Organization Return Due Date One trap: the extension covers the paperwork, not the money. If you owe unrelated business income tax on Form 990-T, that payment is still due on the original date.

E-Filing Is Mandatory

Paper is essentially off the table. The Taxpayer First Act requires electronic filing of Form 990 and Form 990-PF for tax years beginning after July 1, 2019, and Form 990-EZ for tax years ending July 31, 2021 and later.6Internal Revenue Service. Filing Procedures – Certain Organizations Required to File Electronically Form 990-N goes through the IRS’s own portal, so no third-party software is needed for the e-Postcard.

What the Full Return Asks For

Form 990 and 990-EZ demand more than a financial summary. The IRS uses the return to judge whether you still qualify as exempt, and donors use it to size you up.

On the financial side, you split revenue and expenses into three buckets: program services, management and general, and fundraising. You also report balance sheet figures at the start and end of the year. On governance, you disclose how many voting board members you have, how often the board meets, and whether you have adopted conflict of interest, whistleblower, and document retention policies.

Compensation disclosure has firm thresholds. You list up to 20 key employees whose reportable compensation from the organization and related organizations exceeds $150,000, plus the five highest-paid employees over $100,000 who are not officers, directors, or key employees.7Internal Revenue Service. Whose Compensation Must Be Reported in Part VII, Form 990 Independent contractors paid more than $100,000 also appear.

Depending on what your organization does, several schedules may attach to the return. Every 501(c)(3) files Schedule A to show public charity status.8Internal Revenue Service. About Form 990, Return of Organization Exempt from Income Tax Schedule B lists significant contributors, generally those giving $5,000 or more, though public charities meeting the 33⅓% support test only list donors whose gift also exceeds 2% of total contributions.9Internal Revenue Service. Instructions for Schedule B (Form 990) Schedule C covers lobbying and political activity.10Internal Revenue Service. Instructions for Schedule C (Form 990) Schedule F applies if you had activities outside the United States or foreign investments of $100,000 or more.11Internal Revenue Service. Form 990 Filing Tips – Reporting Foreign Activities (Schedule F) Schedule L comes in when you had certain transactions with insiders, like loans to officers.

When You Actually Owe Tax: Unrelated Business Income

Exempt status does not make every dollar tax-free. If you run a trade or business, you do it regularly, and it is not substantially related to your exempt purpose, the profits are taxable as unrelated business income.

Several categories are excluded. Work done substantially by unpaid volunteers, sales of donated merchandise (such as a thrift store), activities carried on primarily for the convenience of members, students, or employees, and most passive income (dividends, interest, royalties, and rents from real property) generally fall outside the tax.

If gross unrelated business income reaches $1,000 or more in a tax year, you file Form 990-T, separate from your annual information return. Exempt organizations taxed as corporations pay a flat 21% federal rate on the net taxable amount.12Internal Revenue Service. Form 990-T – Exempt Organization Business Income Tax Return Those organized as trusts pay the progressive trust rates, which climb faster. If you expect to owe $500 or more for the year, you also owe quarterly estimated payments.13Internal Revenue Service. Estimated Tax – Unrelated Business Income

Payroll Taxes Are a Separate Obligation

Tax-exempt status covers your organization’s income tax on exempt activities. It does not cover employment taxes. If you have employees, you withhold federal income tax from their wages, pay the employer share of Social Security and Medicare, and in some cases pay federal unemployment tax.14Internal Revenue Service. Employment Taxes for Exempt Organizations You report these on Form 941 quarterly and Form 940 annually, not on your Form 990. From the first paycheck, you have the same payroll responsibilities as any for-profit employer. A determination letter changes nothing about that.

You Have to Share the Return Publicly

Federal law requires you to make your annual return (plus every schedule and attachment) available for public inspection for three years from the later of the due date (with extensions) or the actual filing date.15Internal Revenue Service. Public Disclosure and Availability of Exempt Organization Returns and Applications Your exemption application (Form 1023 or 1024) is also subject to disclosure.

Posting the return on the internet satisfies written requests, but you still have to allow in-person inspection at your principal office during normal business hours. Public charities do not have to disclose contributor names and addresses from Schedule B. Ignoring a request costs $20 per day up to $10,000 per return, and a willful failure adds a $5,000 penalty.16Internal Revenue Service. Political Organization Filing Requirements – Penalties for Failing to Make Forms 990 Publicly Available

Don’t Forget State Filings

Federal filings are not the whole picture. Many states require nonprofits to register before soliciting donations from residents and to file periodic financial reports after.17Internal Revenue Service. Charitable Solicitation – State Requirements Rules vary, exemptions vary, and if you fundraise across state lines you may need to register in each state where you solicit. Separately, most states require an annual corporate report to the secretary of state to keep your legal entity in good standing. Miss those and the state can administratively dissolve the corporation, which is a problem your IRS filings cannot fix.

What Late or Missed Filings Cost

Late or incomplete returns trigger a daily penalty of $20, capped at the lesser of $10,500 or 5% of gross receipts for the year.18Internal Revenue Service. Annual Exempt Organization Return – Penalties for Failure to File Larger organizations pay more: the statutory base for groups with gross receipts over $1,000,000 is $100 per day, up to $50,000.19Office of the Law Revision Counsel. 26 USC 6652 – Failure to File Certain Information Returns, Registration Statements, Etc. Those figures adjust for inflation each year; check the current instructions for the exact numbers.

If the IRS sends a demand letter and the return still is not filed by the stated deadline, individual officers or managers responsible for the filing can be personally penalized $10 per day, up to $5,000.18Internal Revenue Service. Annual Exempt Organization Return – Penalties for Failure to File Board members rarely think about this exposure until it reaches them.

Form 990-T has its own structure: 5% of the unpaid tax per month, up to 25%, plus interest on the unpaid balance.20Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax Form 990-N has no late penalty, but a missed e-Postcard still counts against you for revocation purposes.

Three Missed Years and You Lose Your Exemption

The real risk is not the daily fine. If you fail to file the required return or notice for three consecutive years, the IRS automatically revokes your tax-exempt status. There is no warning letter and no appeal. Revocation takes effect on the original due date of the third missed return.21Internal Revenue Service. Automatic Revocation of Exemption After that, you are a taxable entity and must file corporate income tax returns on all your earnings going forward.

Reinstatement is possible through four separate IRS procedures, with the easiest path (streamlined retroactive reinstatement) open mainly to smaller organizations that act within 15 months of revocation.22Internal Revenue Service. Automatic Revocation – How to Have Your Tax-Exempt Status Reinstated Every path requires submitting a fresh exemption application with the user fee published in the IRS’s annual revenue procedures,23Internal Revenue Service. User Fees for Tax Exempt and Government Entities Division filing all missed returns, and typically writing a reasonable cause statement. Organizations that drift into revocation often spend thousands in professional fees digging back out. The annual filing is the cheaper option by a wide margin.