Choosing an accounting basis at your nonprofit organization

How to Choose the Right Basis of Accounting for Nonprofits

Being successful as a nonprofit means that everything needs to fall into place when and where it needs to fall into place. Knowing this, there are many different considerations and moving parts that you can control in order to gain additional visibility, save time, and improve outcomes.

While we discussed some of these factors, including the shift to outcome metrics and things to understand before selecting or changing from a calendar year to a fiscal one, today, we would like to turn our attention to another important consideration: How to choose a basis of accounting.

A recent AICPA article explored the basics on selecting a basis, and how to decide on whether a cash basis, accrual basis, modified cash basis, or tax basis is the proper way to look at the numbers, comparing these options and offering tips on how to select the one that makes the most sense to your nonprofit.

Different Bases of Accounting for Nonprofit Organizations

Whether cash, accrual, modified, or tax year, each basis of accounting listed below poses opportunities and challenges in measurement, disclosure, and reporting.

Cash Basis

If a nonprofit organization uses the cash method of preparing its accounting records and statements, it recognizes income and expenses when they occur. In other words, the nonprofit would record income when it received the funds and not when it is actually earned. It would also record expenses at the time it paid the bill rather than when it incurred the expense.


This is a common approach for smaller nonprofits, as it mirrors a personal “checkbook accounting,” entering debits or credits as they are completed. For example, under a cash basis, if you receive a $10,000 pledge today, you do not record the $10,000 until the money is in the bank.

Pros and Cons

Pros and cons of the cash basis are as follows:

  • Pro: Easier to use on a day-to-day basis as it only requires one entry per transaction.
  • Pro: Due to its straightforward nature, cash basis requires less work and less stress when working with slow-paying funding sources (as opposed to accrual accounting, where money would be booked but the bank accounts could be barren)
  • Con: Must put a disclaimer on year-end reports that you use a cash basis.
  • Con: Presents challenges in visibility, especially for larger nonprofits.

Accrual Basis

Using the accrual method of accounting, a nonprofit recognizes income when they earn it, rather than when they receive it. It would also recognize expenses when they were incurred instead of when the organization paid the bill. For example, using the accrual method a nonprofit would recognize a pledge as income. That would hold true even if it had not yet received all the money, or even any amount of the donation pledged.


Under the accrual method, nonprofits would record revenue and expenses when the transaction takes place, regardless of whether the cash has changed hands. For example, a $10,000 pledge would be recorded immediately and would create a receivables account for outstanding cash.

Pros and Cons

  • Pro: Offers a more complete view for monthly and quarterly financial statements, allowing you to get a more complete picture of your organization’s financial condition.
  • Con: More work—two entries per transaction and necessary cash flow statements.
  • Con: Requires more time and effort to keep books on a pure accrual basis.

Fund Accounting

Funds accounting is a form of accrual accounting that is specific to nonprofits. As a nonprofit grows, its funding sources can become more diversified. It may receive multiple grants, a government contract, personal donations of cash and goods and donations of time. With the funds basis of accrual accounting, each income stream is given its own accounting code. For example, your Department of Education grant would have its own code. Beyond that, you would be able to assign codes within a category so that you could break up DOE funds between general revenue, service revenue and administrative.

Modified Cash Basis

Modified cash basis statements combine elements of cash basis and accrual accounting. Certain transactions are reported on an accrual basis and others on a cash basis (for example, liabilities may be presented, but fixed assets may not).

The modified cash basis establishes a position part way between the cash and accrual methods. The modified basis has the following features:

  • Records short-term items when cash levels change (the cash basis). This means that nearly all elements of the income statement are recorded using the cash basis, and that accounts receivable and inventory are not recorded in the balance sheet.
  • Records longer-term balance sheet items with accruals (the accrual basis). This means that fixed assets and long-term debt are recorded on the balance sheet, and depreciation and amortization in the income statement.

Pros and Cons

  • Pro: Makes accounting for small transactions easier while allowing for a more accurate position when looking at fixed assets or large transactions.
  • Pro: Does not need disclaimer on year-end forms.
  • Pro/Con: Very conservative method of recording income and expenses. In this method, you only report cash which has been received, but include expenses whether or not they have been paid.

Tax Basis

While rare in the nonprofit world, there may be some cases for a tax basis for accounting. The tax method of accounting would ensure the financial statements match the organization’s Form 990.

Factors to Consider When Deciding on an Accounting Basis

AICPA author Marc Kotsonas, CPA, Officer- Mahoney Ulbrich Christiansen Russ shared the following six factors in choosing a basis of accounting.

  • Simplicity. The cash method may be the easiest to maintain and understand. Either the money came in or it went out. There are no accruals or allocations to compute. Cash basis financial statements are most common with very small not-for-profits.
  • Savings. Cash basis financial statements may provide administrative savings. With no accruals or allocations to consider, less time is required for accounting. In addition, if the organization has a financial statement audit, there are fewer statements for an auditor to test and issue an opinion on. This would generally reduce the cost of an audit.
  • Regulatory Requirements. Do you have to use a particular basis of accounting? For example, in Minnesota, the Attorney General’s office requires not-for-profits with more than $750,000 in revenue to have audited financial statements under GAAP. The IRS also addresses accounting method in its Form 990 Instructions, so be sure to consider the tax compliance implications of your choice.
  • Organizational Documents. Like regulatory requirements, a not-for-profit’s by-laws may specify the basis of accounting the organization must use. Consider reviewing your organization’s by-laws before undergoing extensive research to make sure you have the flexibility to choose a basis of accounting.
  • Understanding of Financial Position. Financial statements prepared under GAAP typically give readers a better understanding of the financial position of the organization at year-end. GAAP-based financial statements will show payables and other outstanding obligations, as well as any committed receivables or pledges. Cash basis statements often provide limited information. For instance, a not-for-profit that receives donated supplies and materials used in its programs would not capture their value or impact to the organization using cash basis statements.
  • Established Framework. Financial statements prepared using GAAP are based on a familiar framework. Since GAAP is commonly used, it also allows for financial statement comparability. Modified cash basis financials can be presented in any format management chooses, so they may not be comparable with the statements of other organizations.

Learn More: Nonprofit Success with rinehimerbaker

At rinehimerbaker, we are committed to helping you succeed. This is why we have written a series of helpful articles on running the finances at a nonprofit organization. We invite you to learn more by reading our articles on Outcome measures,  improving reporting, and increasing efficiency. Learn even more by reading these two nonprofit success stories from our friends at Sage Intacct, and contact us for more details.

Choosing your nonprofit year-end date

Nonprofits: Choosing or Changing Your Fiscal Year-End

Running a successful nonprofit requires a lot of hard work and timely decision making, often without the prestige or paycheck that comes with doing so for a comparably sized for-profit organization. With all this in mind, we would today like to explore one tactic that could improve your visibility, help you better time your expenditures, and simplify your budgeting. This tactic, changing your nonprofit organization’s year-end, has both costs and benefits associated with it, but often can improve outcomes for the organization and its constituents.

Calendar Year vs. Fiscal Year

The IRS allows nonprofits to file using one of two methods: calendar year and fiscal year, offering the following definitions:

  • Calendar year– A calendar tax year is 12 consecutive months beginning January 1 and ending December 31.
  • Fiscal year– A fiscal tax year is 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.

Problems with “Traditional” Calendar Years

For some nonprofits, there is nothing wrong with a traditional December 31 year-end—or even a commonly-used June 30 fiscal year-end. For others, these dates pose inconvenience and uncertainty.

Moving away from a traditional calendar year for tax purposes could help you get more clarity into your revenue streams, as well as better control of your budgeting. For many nonprofits, changing your year-end can help you handle fluctuations in revenue (i.e. large amounts of donations coming in the last quarter of the calendar year), and adjust your budgets accordingly.

In addition to this, moving to a fiscal year can help you stay on the good side of employees, who may not want to spend their holidays closing the books, or who don’t want to immediately transition from filing their own income taxes in April to preparing their company’s Form 990 by May.

Why You May Want to Change Your Year-End

So, why would a nonprofit want to adopt a different fiscal year? Many reasons exist, but most commonly, a nonprofit would change its year end to match the ebb and flow of the revenue cycle common in not-for-profit organizations. As mentioned above, using a calendar year creates blind spots in budgeting, as it’s hard to plan an entire year around a highly volatile Q4.

Considerations on Choosing Your Nonprofit’s Fiscal Year-End

Laurie De Armond of BDO and Lee Byrd of Langdon CPAs explored the premise of changing your year end, finding that some of the most important considerations include:

  • Program year– the organization’s fiscal year should coincide with its program year so that one year’s program activities should not fall into two fiscal years. For example, if the majority of the nonprofit’s programs fall during the summer months, June 30th is most likely not the best option for that nonprofit’s fiscal year-end.
  • Revenue Cycles – If you put considerable focus on fundraising from individuals, it’s important to build around the end of their years. For instance, if an organization receives a considerable portion of revenue between October and December, a calendar year offers little to no flexibility or opportunity to strategize. While a move to end a year immediately preceding a heavy fundraising period my create administrative hassles, it has helped some nonprofit organizations position themselves for smarter spending.
  • Grant cycles– Some organizations may find it helpful to align their fiscal year-end with the terms of the organization’s major grants and/or funders. This enables the organization to develop a clean cut-off for grant reporting and simplifies the grants process.
  • Primary Funder’s Fiscal Year – This was discussed by BKD author Nikki Kubly, who offers an example similar to that of the grant cycle consideration: “the fiscal year-end may be chosen to coincide with a primary funder’s fiscal year-end and resulting reporting requirements. For example, if a major portion of an organization’s support is from the state government, the NFP may select the same fiscal year-end as the state to simplify reporting on state grants.”
  • Audit evidence– Nonprofits who require an audit generally need time subsequent to year-end to close out the books and gather audit evidence in preparation for the audit. Having a year-end that falls during the organization’s busiest time of year may impact the availability and timeliness of sufficient audit evidence.
  • Debt covenants– For organizations with significant debt covenants, the cyclical nature of the organization’s operations and the impact on the calculation of those covenants should be considered when choosing a year-end.
  • Impact on Audit Period and Presentation in Year of Change:Making a year-end change will affect how an organization presents its audited financial statements in the year of the change and in the following year. An organization can choose to extend the period under audit in the year of a change (i.e. have an audit for a 15-month period end), or have an audit for a short period, plus the organization’s original year end. For this reason, single year audit statements will likely need to be presented rather than comparative statements in the year of change.
  • State Charitable Registrations:Consider the impact of a change in year end on the availability of audited financial statements and your Form 990 for purposes of state charitable registrations.
  • Application for Combined Giving Campaigns:During the year of a change, consider the impact of the availability of an audit on your organization’s application for the Combined Federal Campaign or other combined giving campaigns.

Paperwork for Changing Year-End

Nonprofits looking to change their year-end need to file Form 1128, Application to Adopt, Change, or Retain a Tax Year, with instructions available here. Form 1128 is used by corporations, Individuals, trusts, and any other entity that needs to change its accounting period with the IRS.

Filing a Short-Year Form 990

If the organization changes its accounting period, it must file a Form 990 for the short period resulting from the change and write “Change of Accounting Period” at the top of this short-period return.

Timing Your Change in Fiscal Year

According to the Cullinane Law Group, a law firm in Austin, Texas serving nonprofits and social enterprises, “If the nonprofit wants to change its fiscal year, it must file IRS Form 1128 by the 15th day of the 5th month following the close of the new fiscal year. Example: Current fiscal year runs from January 1 to December 31; new fiscal year to run from October 1 to September 30. Form 1128 is due on February 15th of the following year.”

Learn More: Running a Successful Nonprofit

At rinehimerbaker, we are committed to helping you succeed. This is why we have written a series of helpful articles on running the finances at a nonprofit organization. We invite you to learn more by reading our articles on Outcome measuresimproving reporting, and increasing efficiency. Learn even more by reading these two nonprofit success stories from our friends at Sage Intacct, and contact us for more details.

Outcome Metrics Nonprofits

Why It Pays to Embrace Outcome Metrics in Nonprofit Accounting

In nonprofits, it’s all about the mission. As a CFO, Controller, or Accounting Professional at a nonprofit, it’s likely that you joined the firm because of this mission. While an honorable choice of career and employer, you’re probably working on a shoestring budget with a smaller staff than you should have, and are already burning the midnight oil to close the books or build a report.

Nonetheless, in order to fuel the growth of your nonprofit, you’re probably going to have to do even more reporting. Today, we would like to discuss the importance of outcome measures—key performance indicators that you should use to communicate your nonprofit’s effectiveness to donors, regulators, and stakeholders. Read more

Dimension based Reporting

How Nonprofit Leaders Can Regain Control of Their Chart of Accounts

Leading a successful, honest nonprofit requires a lot of attention to detail. With regulators and watchdogs breathing down your neck, standards boards making the reporting process more complicated than ever, and more competition for donor and grantor money, running a nonprofit is more challenging than ever.

Many Reporting Challenges, Many Stakeholders

How many people do you answer to? How many different ways do you have to answer a question? At a traditional small or medium for-profit company, answering these questions is often somewhat straightforward. However, for a financial professional at a nonprofit, this is much more disparate, and many stakeholders expect ad hoc reporting from the finance department for a much more disparate set of metrics and entities.

Think of what you need to track, how you need to track it, and who needs these questions answered. How often do you need to drill down to a specific metric to answer the questions of a potential or current large donor or grantor who wants to see if the money is being used effectively? How fast do these entities want this information?

The landscape is complex, with financial leaders at nonprofits facing the following battle, answering questions from stakeholders about many different metrics and dimensions:

Nonprofits need to account for: Reporting to the following Stakeholders
·         Funds

·         Grants

·         Projects

·         Programs

·         Locations

·         Board

·         More

·         Board

·         Donors

·         Grantors

·         Staff

·         Executives

·         Congregation

·         More


Worse yet, if you’re like so many others, you have to make all of this reporting happen in spreadsheets. This means more time, effort, and unfortunately, errors as you attempt to cut and paste data between spreadsheets. This poses a problem, creating an environment in which nearly 90% of spreadsheets have errors.

The Answer: Simplify, Categorize, and Automate

When you need to answer multiple questions from multiple people about multiple data—fast, the easiest way to make this happen is through point-and-click reporting and automation. This is where Sage Intacct is built to meet the needs of nonprofit organizations, letting you get set up with point-and-click tagging, categorization, and customization. Better yet, add multiple attributes to a single element to improve analysis and comparison.

The Problem with Spreadsheets: Unnecessary Complexity

A recent webcast, The Modern Day General Ledger: Leveraging Cloud Technology for NFP Accounting, explored the challenges that even a nonprofit with a simple structure faces to account for a task like printing. This example nonprofit had a relatively simple setup:

  • Five Funds: G&A, School, Facilities, Cap Assets, and Debts
  • Four Grants: Federal, State, Local, Corporate
  • Three Programs: Fundraising, Management/General, and Other
  • One Restriction: Unrestricted/Restricted

With a spreadsheet-based approach, this nonprofit will need 60 different combinations of accounts—just to accomplish some form of printing. If you add a new grant, guess what, the account just grew from 60 to 75. Add on this another program (now at 5/5/4/1), it grows to 100. Maybe the grantor has a specific restriction, and you’re up to 200 combinations of numbers.

The Answer: Smarter Chart of Accounts

On the other hand, with a smarter solution like Sage Intacct, you can tag an action or line item as you need, reducing errors and speeding up the reporting process. Rather than setting up dozens or hundreds of different combinations, just select printing. From there, you can move down a list of drop-down menus so that the expense is sent to the right location. This presents less chance for a finger slip throwing everything out of whack. On top of this, you can even scan the invoice so that even in an audit, you can track down when, where, and how something happened.

Bringing it All Together: Answering the Who, What, and Where

By taking advantage of a smarter chart of accounts, it becomes easier than ever to answer the who, what, and where (when it needs to be answered). Through dimension-based accounting, nonprofit financial leaders can tag a transaction or line item in any combination they see fit. Sage Intacct offers eight standard dimensions, but takes this one step further by allowing you to tailor a dimension as needed:

Standard Dimension Tailored Dimension
Who Customer, Vendor, Employee Customer, Member, Funder
Where Project, Department, Location Project, Grant, Department, Cost Center, Program, Fund, Ministry
What Item, Class Item, Service, Restriction


What This All Means

You may be thinking, “So what?” Good question, with a much better answer.

You want to save time, right? You want to generate more revenue for your mission, right? You want to make your own life easier, right?

That’s what dimension-based reporting is for. By taking advantage of flexible dimensions, you can improve the quality of your reports, you can do so in less time, and you can answer questions like “should we make this purchase now?” or “how can I be sure my money is going where it needs to?” quickly, easily, and accurately.

Learn More: Sage Intacct Making Life Easier for Thousands of Companies and Nonprofits

With over 11,000 highly satisfied customers, many of them in the nonprofit space, Sage Intacct has become a leader in the movement to improve the lives of nonprofit leaders and cut down the red tape between them and those they hope to serve. Whether the nonprofit is a church, association, charity, or school, they have been there, helping finance professionals to save time and money, making life easier, and helping these organizations get closer to accomplishing their mission. We welcome you to watch the entire webcast from Sage Intacct, and read some of the following case studies to learn more:

Nonprofit Success Stories

Two Nonprofit QuickBooks Upgrade Success Stories

QuickBooks, along with other entry-level accounting software, is amazing for businesses who are just starting out, but there comes a time for all organizations in which its manual processes, lack of visibility, and reliance on spreadsheets to get basic tasks done makes the software less and less affordable. While the actual costs haven’t increased, the labor costs have, and you’re on the verge of attempting to find another highly-paid accountant just to get the job done.

However, look at it this way. As great as it would be to have another likeminded person in the office, finding an accounting professional during the current war for talent and with the current skills gap in accounting is no easy task. Not to mention, recent data shows that it’s cheaper to upgrade than it is to hire.

This is why we would like to share with you a few success stories from companies just like yours who were feeling the limitations of their entry-level software and made the move to take their processes to the cloud with Intacct.

USA Fencing Gives QuickBooks the Black Card

For the most grievous penalties in fencing, the referee hands out what’s known as a black card, resulting in elimination from the match and event. For a nonprofit with growth in mind, QuickBooks wasn’t keeping up, holding the organization back and standing between the accountants and their goals.

With three major revenue streams, a need for specific control of restricted funds, and major funders with high expectations, USA Fencing was pushing QuickBooks beyond its limitations and needed to get free—and fast.

In this, USA Fencing began looking at next steps, evaluating Blackbaud and Intacct, letting the two vendors duel it out before declaring a winner.

“When it became clear that we needed a more powerful system to handle our nonprofit accounting needs, we evaluated both Intacct and Blackbaud,” said Keri Khan, director of finance and business services at USA Fencing. “Intacct was without a doubt the best choice for us because of its flexible report writing capabilities, its accessibility in the cloud, and its overall ease-of-use across all our key financial workflows.”

Today, USA Fencing has been able to continue growing without pain, increasing productivity and gaining peace of mind. Among the key wins that Intacct has provided to USA Fencing:

  • Cutting month-end reporting times in half.
  • Doubling the speed of expense reimbursements for athletes, employees, and contractors.
  • Streamlined purchasing workflows, reducing the time and effort needed to make simple or complex purchases.

Learn more about USA Fencing’s move to the cloud and read the entire case study here.

White Ribbon Alliance Leverages Intacct for Multi-Currency Accounting

With over 150 countries in its international coalition and an increasingly diverse funding portfolio, White Ribbon had to meet numerous fund accounting and compliance requirements, and found that QuickBooks wasn’t able to keep up. In fact, QuickBooks was holding White Ribbon Alliance back so much that they were facing a 2 to 3 month lag in the financial close process.

When comparing solutions White Ribbon Alliance looked at Intacct and NetSuite, deciding on Intacct for its ability to handle multiple currencies and entities.

Intacct’s cloud-based system ended up as a clear choice over NetSuite because of its impressive multi-entity and multi-currency capabilities, as well as the great experience we had with the Intacct team who showed a clear commitment to ongoing product enhancement and customer success.

White Ribbon turned to Intacct to streamline manual fund accounting processes and increase productivity. The process improvements provided by Intacct enabled White Ribbon Alliance to add new countries and services without any additional financial headcount, simplify its global business management, automate key financial processes, speed its monthly financial close process, and improve business visibility. These streamlined processes have also cut out a 2 to 3 month lag in the organization’s financial close process. Read the entire case study here.

Ready to Learn More?

At rinehimerbaker, we are committed to helping growing companies and nonprofits to handle their needs with cloud accounting. We would love to speak with you about your next steps and provide insight on how to proceed. Preview our guide to outgrowing QuickBooks below, download the entire whitepaper here, and learn even more by reading “Life After QuickBooks,” a guide from our friends at Intacct.

Need for Speed Nonprofit

The Need for Speed at Nonprofit Organizations

Nonprofit leaders have some unique challenges, but one of the most common and pressing issues to address is that you need to get things done quickly, but also need to get these things done without the resources of your for-profit counterparts. Whether that means creating reports without a large staff, answering donor questions or managing funds without relying on an IT team to write scripts, or simply closing the books each month, you have a lot of work with not much help. Read more

five challenges nonprofits face

Five Top Pain Points for Nonprofit Financial Teams

Now that you’ve filed Form 990, it’s time to get back to the daily grind of accounting. Was this year more challenging than last? Will next year be even more challenging? As your nonprofit organization grows, you face additional challenges that come with said growth—often facing more stakeholders, stricter requirements, and smaller budgets than a comparable for-profit organization. Needless to say, you face some unique challenges. Today, we would like to look at five of the biggest challenges that financial leaders at nonprofits face, and how to address them as you grow.

Five Top Challenges Nonprofits Face Day in and Day Out

Challenge 1: Complexity in Nonprofit Accounting

For nonprofit organizations, the daily tasks of accounting and financial management are driven by a broad array of complexities. Nonprofits have to work with different documents than their for-profit counterparts, including statements of activities, statements of financial position, statements of cash flow, and the Form 990.

With different cash flows and income streams come different challenges, as well. Grants, donations, break-even product sales, for-profit subsidiaries, and more mean that you have a lot of different questions to answer—all while trying to focus on the mission.

It’s a complex environment with a lot of stakeholders, and nonprofit organizations need to be able to answer questions quickly and accurately.

Challenge 2: Internal Controls

Most for-profit corporations create their internal controls, reporting, and financial monitoring by products, divisions, geographies, and entities. Nonprofits have remarkably similar needs, seeking to manage their monies by grants / donors, programs, geographies, and other dimensions.

For national nonprofits—especially ones looking to improve engagement by decentralizing and localizing operations with a chapter structure, this creates a set of complexities akin to major franchises or other multi-location businesses. Yet in this kind of environment, the central office still needs to take control of these decentralized locations, rolling up all of the information and ensuring that all are operating within the standards of the national.

Challenge 3: Complexities in Grant and Fund Management

While a for-profit business may have to answer to a few external requests for information, a nonprofit has to answer to each grantor and funder differently. Every funder wants to see how his or her investment is going, and this means reporting to a great deal of people with different expectations.

Without automation, these reports could takes days or weeks to complete, and still not provide all of the expected information. In terms of grantors, their expectations, while just as high, also require your nonprofit organization to report on general vs. restricted funds, adding even more complexity and challenge in reporting.

Challenge 4: Meeting Stringent Reporting Requirements

In a challenging economy, agencies, social-service organizations, charities, and other nonprofits are under tremendous pressure to acquire, secure, and maintain funding sources to ensure their continued operation. Transparency is an essential strategy for securing and keeping those donors and sponsors on board.

Communicating the effectiveness of your initiatives can be one way to secure more funding and to maintain your status in the eyes of the government requires accuracy and transparency. Add on top of this internal reporting requirements, and you have even more challenges that can’t be addressed with manual reporting.

Challenge 5: Handling the Needs of a Growing Nonprofit without Growing IT Budgets

Even while struggling to address all of these challenges, you have to do so with a much more stringent budget than your for-profit counterparts. One of these strict budgets is IT—it’s likely you don’t have the people or capital to allocate huge amounts of money on a software solution.

Nonprofits need to be able to do all of this reporting while still increasing their contribution to the mission, and one of the most common ways they are doing this is through cloud financials.

Download the Nonprofit CFO Survival Guide

Is your nonprofit or not-for-profit organization struggling to keep up with increasing needs with the same limited resources? Nonprofit CFOs are under the gun to achieve so much: to automate processes, improve productivity, create greater levels of transparency and visibility, enhance the governance of the organization, and strengthen the team’s decision-making and strategic focus.

If you feel that your organization is being held back by manual operations, primitive tools, and paper-based processes, we would like to share with you an immensely helpful whitepaper for finance leaders at nonprofits looking to take control of their operations and move toward their mission.

Titled The Nonprofit CFO’s Survival Guide—A Mini Field Manual, this whitepaper explores the aforementioned challenges in depth and how to address them. Download the Nonprofit CFO Survival Guide here.

rinehimerbaker, llc is proud to serve the unique needs of nonprofit organizations across the state of Florida. From outsourced accounting to software selection assistance, we have worked with nonprofits before and would love to help you. Learn more about Intacct for nonprofit organizations, compare it to other solutions like Abila and QuickBooks, and contact us for more details.

IRS Form 990 for Nonprofits

IRS Form 990: What Nonprofits Need to Know

For nonprofits who follow a January 1-December 31 calendar, one of the most important dates of the year is coming up: Form 990 filing day. Just as March 15 for corporations and April 15 for individuals, May 15 holds a great deal of importance for tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations who have to file this form to provide the IRS with the information required by section 6033.

Used by the government to determine whether you can retain tax exempt status for the year and charity evaluation organizations who determine if donor money is being used properly. As the date rapidly approaches, it’s important to have your house in order so as to avoid any kind of last-minute issues or crunches that could pop up if you wait.

Why You Need to File Your Form 990

If you’ve been operating for a while, it’s likely you know why it’s so important to file a Form 990—providing the public with information about your financials so that possible donors know your funding sources and so that you can prove that their money is going toward your mission. It’s also important so that you can keep your tax exempt status—failure to file for three years in a row means automatic revocation of tax exempt status.

According to Cullinane Law Group, since 2011, more than 500,000 nonprofits across the country automatically lost their tax-exempt status for this reason. Additionally, the IRS has no appeal process for automatic revocations due to failure to file an appropriate Form 990 for three years. Without this status, your organization could be subject to paying income taxes. Additionally, you can avoid paying user fees and filing additional documents with the IRS by submitting your Form 990 each and every year.

Different Variants of Form 990

Depending on your size and organizational focus, there are three variants in addition to traditional Form 990: 990-EZ, 990-N (e-Postcard), and 990-PF.

  • Form 990-N (e-Postcard): For organizations with gross receipts normally under $50,000, this is the easy way to satisfy reporting requirements. There are only eight things to file, and can be done in minutes. For more information, click here.
  • Form 990-EZ: For organizations ranging from $50,000 to $200,000, and Total Assets less than $500,000, Form 990-EZ is the short version of Form 990. Consisting of six parts and four pages, 990-EZ instructions can be found here, and the form can be found here.
  • Form 990: For organizations whose gross receipts exceed $200,000 or total assets equal or exceed $500,000, Form 990 is the traditional form, consisting of twelve parts on twelve pages. Additional schedules may need to be filed for both 990 and 990-EZ.
  • Form 990-PF (Private Foundations): For Private Foundations who need to report all grants, trustees, officers, and more, they need to file a Form 990-PF. Foundation Center shares an interesting article, Demystifying the 990-PF.

Schedules for 990-EZ, 990, and 990-PF

Additionally, those filing a Form 990 may need to complete additional Schedules in order to communicate their funding and status, listed below:

Public Charity Status and Public Support (Schedule A), Schedule of Contributors (Schedule B), Political Campaign and Lobbying Activities (Schedule C), Supplemental Financial Statements (Schedule D), Schools (Schedule E), Statement of Activities Outside the United States (Schedule F), Supplemental Information Regarding Fundraising or Gaming Activities (Schedule G), Hospitals (Schedule H), Grants and Other Assistance to Organizations, Governments, and Individuals in the United States (Schedule I), Compensation Information (Schedule J), Supplemental Information on Tax-Exempt Bonds (Schedule K), Transactions With Interested Persons (Schedule L), Noncash Contributions (Schedule M), Liquidation, Termination, Dissolution, or Significant Disposition of Assets (Schedule N), Supplemental Information to Form 990 (Schedule O), Related Organizations and Unrelated Partnerships (Schedule R).

Companies Exempt from Filing Form 990

Not all nonprofits have to file annual returns. Generally, the following do not have to file Form 990:

  • Most faith-based organizations, religious schools, missions or missionary organizations
  • Subsidiaries of other nonprofits – those that may be covered under a group return filed by the parent organization
  • Many government corporations
  • State institutions that provide essential services.

The Form 990 is Necessary and Important

Much like a 10-K for publicly traded organizations and their potential investors, Form 990 will be seen by the public. However, your organization relies on donations, volunteers, and grants, so making sure the form is accurate, that overhead is minimized, and that you can prove yourself as a viable mission-focused organization can be the difference between growth and collapse.

For many nonprofits, using spreadsheets and hope is not a strategy that can lead to high ratings. With spreadsheets and other manual financial processes so error prone, they could be forcing your organization to hire additional accounting professionals or worse, putting you at risk for audits.

Our friends at Intacct recently presented an on-demand webinar on strengthening accountability and preparing for the precipice of an audit. Learn more about how you can improve reporting, accuracy, and your ability to remain compliant by watching the webinar, Strengthening Nonprofit Accountability through Audit-Ready Financials, or by reading The Nonprofit CFO’s Survival Guide: A Mini “Field Manual”

Learn more about Intacct for Nonprofits and how rinehimerbaker can help you implement it for success in future years as it grows with you.