Preparing for Form 990: A 5-Step Approach for Nonprofits 

Form 990, Return of Organization Exempt from Income Tax, provides the IRS and the public insight into nonprofit organizations’ financial health and annual performance. And with 12 parts and the potential for many more schedules, a nonprofit’s Form 990 filing can be onerous to prepare.

Whether you’re working with expert nonprofit tax and accounting advisors or filing Form 990 yourself, gathering all necessary information beforehand will help ensure a smoother preparation process. We’ve created a simplified five-step guide to help nonprofits get ready to prepare Form 990.

Step 1: Organize Your Financial Records

Form 990 requires detailed information about your organization’s financial standing and performance over the past year. To expedite Form 990 preparation, make sure that you’ve already reconciled all bank and investment accounts with your financial records. You’ll also want to prepare the following financial statements:

• Balance sheet
• Statement of activities
• Statement of cash flow
• Statement of functional expenses

Step 2: Gather Donor and Program Information

Nonprofit organizations that receive contributions report donor information on Schedule B (Form 990), Schedule of Contributors. With the help of donor-tracking software, it should be easy to pull the following information for your Form 990 preparer:

• Donor names and addresses, nothing whether any donor is related to the organization or any of its key employees or officers
• Donor contribution amounts for the year, broken down by donor
• Details about noncash donations, including an estimate of their fair market value

You’ll need to provide a similar level of specificity regarding your organization’s program activity. Every nonprofit organization is required to describe its three largest program services on Form 990 Part III, Statement of Program Service Accomplishments. It’s a best practice to keep track of the following as it relates to each separate program service:

• Specific goals and objectives of the program service, as well as the actual outcomes and impacts
• Number of individuals and organizations served
• Key statistics or achievements
• Any significant changes to the program service during the year

Before meeting with your Form 990 tax advisor, review last year’s filing to determine whether the program information on Form 990 Part III or Schedule O (Form 990), Supplemental Information to Form 990 or 990-EZ, needs to be revised to accurately reflect the program service accomplishments during the reporting year.

Step 3: Review Board Changes and Governance Policies

Changes to your organization’s board of directors and trustees are bound to happen each year. Keep a log of changes handy; you’ll need to report them on Form 990 Part VII, Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors. Specifically, you’ll need to know the following information about each board member (and any former board members who received at least $10,000 in compensation):

• Full name
• Title, such as President, Chair, Secretary, or Treasurer
• Average number of hours committed each week
• Compensation, if applicable

In addition, you’ll want to review your organization’s governance policies and make any necessary revisions. Standard governance policies include the following:

• Conflicts of interest
• Whistleblower instructions
• Document retention

Step 4: Compile Compensation Data

Form 990 Part VII, the same part mentioned in Step 3, also requires information about the organization’s officers—essentially the executive leadership team—as well as key employees and highest compensated employees. Regardless of the organization’s tax year-end date, Part VII reports the compensation of officers, key employees, and highest compensation employees on a calendar-year basis. Organizations should review payroll summaries and tax statements (including Forms W-2 and 1099) to collect reportable compensation data, such as wages, bonuses, retirement benefits, and health benefits.

According to the IRS, key employees are your organization’s 20 most highly compensated employees who earn at least $150,000 in reportable compensation, have leadership-level responsibilities, and meet some other requirements. Highest compensated employees are the five most highly paid employees who earn at least $100,000 and aren’t listed as a director, officer, or key employee. Officers are reported on Part VII regardless of the amount of compensation.

Step 5: Document Fundraising Activities

Many nonprofits bring in funds through fundraising events—galas, auctions, sports events, and more. To ensure accurate reporting on Form 990, you’ll want to provide detailed information to your nonprofit tax advisor that breaks out the key metrics from each event. To get started, nonprofits should track and compile the following information for each fundraising event:

• Gross revenue from ticket sales, sponsorships, and donations
• Direct expenses (advertising, prizes, facility costs, food and beverage, etc.)
• Campaign methods used (direct mail, digital marketing, in-person solicitation)
• Cash donations vs. non-cash contributions (in-kind goods/services)

This detailed level of reporting is needed because fundraising event income and expenses are separately reported on Part VIII, Statement of Revenue, and, depending on the amount of fundraising event gross income and contributions, Schedule G (Form 990), Supplemental Information Regarding Fundraising or Gaming Activities.

Smith + Howard: Experts in Form 990 Preparation

With over five decades of experience serving nonprofits, Smith + Howard has prepared Forms 990 for exempt organizations in virtually every industry. Clients who work with us gain access to experienced nonprofit tax advisors who know the ins and outs of often-complex reporting requirements. We take care to educate clients on the best practices in tax compliance so that they can be better prepared for Form 990 preparation and other reporting requirements.  

Contact an advisor to learn more about our services for nonprofits, including accounting, Form 990 preparation, compliance, and more.