A Brighter Way
A Brighter Way
One of the most common mistakes organizations make is not itemizing expenses into the three main categories the IRS designates – programs, general administration and fundraising. “The IRS wants to see what is spent on fundraising,” says Wright. “This is also important to donors as well. But the not-for-profit groups often ignore the fundraising category. And as a result, the IRS will review this category much more closely. When a group raises money, they have to show what expenses were incurred."
Because the 990 is posted on GuideStar, donors can compare the operating expenses of one organization versus another. It is a fine line to spend no money on fundraising and have a poor result and spending a portion of money and earning more dollars for the organization. Some donors will worry that fundraising is not being taken care of if little or no expense is shown in the fundraising area.
Although it is not a mistake, the new Form 990 now requires organizations to document their policies and make sure they are in place. “If an organization cannot answer the questions on the Form 990 or do not know that they must have a policy in place, the new form can catch them off guard and make them noncompliant.
A third common issue is lack of detail regarding an organization’s expenses. “There is a fine line between being overly detailed and not having enough details about your group’s expenses,” says Wright. “For example, are wages, legal expenses and supplies listed under your programs budget? The IRS wants to know what is included in each expense category.”
Is your group a 501c3? If so, be sure to file your annual paperwork with the state.
Is your group an inactive not-for-profit? In order to retain its not-for-profit status, your organization must file a 990N form with the IRS to avoid having its not-for-profit status revoked. “It is much harder to get a not-for-profit status today than it was 30 years ago,” says Wright. “In the past, you didn’t have to do anything formal to continue holding nonprofit status. However, in 2008 the IRS changed its rule to make sure inactive groups continued to file paperwork to retain their status. Inactivity could be for any number of reasons – from an unsustainable budget, to an executive director who left without a replacement."
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.
