Your Nonprofit’s 990 Shouldn’t Be a Once-a-Year Surprise

A nonprofit’s Form 990 is an annual filing.

Preparing for it should not be an annual event.

Every year, nonprofits reach filing season and suddenly start hunting for board changes, grant information, fundraising records, contractor payments, program expenses, and explanations for transactions nobody remembers anymore.

There is a much easier way to do this.

Need help getting your nonprofit’s bookkeeping and 990 preparation under control? Schedule a consultation with Dunham Bookkeeping Services. Good records throughout the year make everything easier when filing time arrives.

Your 990 needs more than a profit and loss statement

A clean profit and loss statement is important, but Form 990 asks for much more than total income and expenses.

Depending on the organization and the return being filed, you may need information about grants, fundraising activities, compensation, independent contractors, programs, board members, governance, and other activity during the year.

That information is much easier to collect while it is happening.

Trying to reconstruct twelve months of nonprofit activity from bank statements and email searches is not my favorite version of archaeology.

Keep track of changes when they happen

Did someone join or leave the board?

Did an officer change positions?

Did the organization begin a new program or discontinue an old one?

Did you receive a large grant, hold a major fundraiser, make grants to another organization, or significantly change how money is being spent?

Make a record of it.

Your bookkeeper may not know that three board members changed in March unless somebody tells them. QuickBooks is talented, but it has yet to develop the ability to attend board meetings.

Grants and fundraising deserve their own attention

Nonprofits often have several different types of revenue flowing through the same bank account.

Donations, grants, membership dues, program fees, sponsorships, fundraising events, and other income may need to be tracked differently.

A deposit called “Fundraiser” for $18,742 does not tell us much six months later.

What event was it? How much did it cost to hold? Were there sponsorships? Did attendees receive anything in exchange for their payment? Were there donated items or services involved?

Keeping those records with the bookkeeping throughout the year can save a lot of questions later.

Your expenses need context too

The same principle applies to spending.

Nonprofit financial reporting is not only about knowing that $4,000 was spent. It is also important to understand what that spending supported.

Was it related to a specific program? Fundraising? Administration? A grant-funded project?

Good bookkeeping gives the organization useful financial information throughout the year and makes annual reporting much easier.

It also gives the board something considerably more useful than “we have $37,000 in the checking account, so I think we’re doing okay.”

We have already discussed my feelings about using the bank balance as a financial report.

Small nonprofits are not exempt from keeping records

Some smaller tax-exempt organizations qualify to file Form 990-N instead of a full Form 990 or 990-EZ.

That does not mean recordkeeping stops mattering.

Your organization still needs records showing what it did, what money it received, and what it spent.

Good bookkeeping is not just something you do because a tax form requires it. Your board needs accurate financial information. Grant applications may require it. Donors may ask questions. Future leaders should be able to understand what happened before they arrived.

And eventually, somebody is going to need to prepare that annual filing.

Make next year’s 990 boring

This is the goal.

When it is time to prepare the return, I would much rather receive clean books, organized records, and a short list of updates than begin with, “Okay, does anyone remember what happened last February?”

Boring tax preparation is wonderful.

Keep the books current. Save supporting documents. Track board and program changes. Keep grant and fundraising information organized. Review financial reports during the year instead of only when a filing deadline appears on the calendar.

Your future 990 preparer will appreciate it.

Need help with nonprofit bookkeeping or Form 990 preparation? Schedule a consultation with Dunham Bookkeeping Services.