Understanding IRS Form 990: A 2025 Compliance Guide for Nonprofits

Each year, tax-exempt organizations in the United States are asked to report on IRS Form 990, an open document that provides openness into the organization's finances, mission, and governance. If you're a nonprofit leader, a donor, or simply interested in how nonprofits remain accountable, this guide will take you through the basics of Form 990 and its 2024 filing guidelines.

What Is IRS Form 990? A Breakdown for Nonprofits

IRS Form 990 is a yearly reporting return required by some federally tax-exempt organizations to submit to the IRS. It gives the government and public a picture of the financials, activities, and compliance of the organization.

There are varying forms based on the nonprofit size:

·         Form 990-N (e-Postcard) – For small nonprofits with gross receipts typically less than $50,000

·         Form 990-EZ – For organizations with gross receipts less than $200,000 and total assets less than $500,000

·         Form 990 – For larger organizations

·         Form 990-PF – For private foundations

Who Is Required to File IRS Form 990?

Most tax-exempt organizations, including:

·         Charitable organizations (501(c)(3))

·         Social Welfare Organizations (501(c)(4))

·         Trade associations and labor unions (501(c)(5) and 501(c)(6))

Who are considered as Tax-exempt organizations?

·       501(c)(3) – Charitable Organizations

These are the most common nonprofits, including those focused on education, religion, health, science, and public safety. Donations to 501(c)(3)s are tax-deductible, and they must not engage in political campaigning.

Includes:

• Charities
• Educational institutions
• Churches and religious orgs
• Animal shelters

·       Private Foundations

Technically still 501(c)(3)s but usually funded by a single source (like a family or company). They mainly give grants rather than run their own programs. Think of them as behind-the-scenes supporters of other nonprofits.

·       527 – Political Organizations

Created to influence elections, these include PACs, political parties, and campaign committees. They're tax-exempt but donations are not tax-deductible.

·       Other Nonprofit Types

• 501(c)(4) – Social welfare orgs (e.g., advocacy groups)
• 501(c)(5) – Labor and agricultural orgs
• 501(c)(6) – Business leagues (e.g., chambers of commerce)
• 501(c)(7) – Social and recreational clubs

Why IRS Form 990 Matters for Nonprofits in 2025

Form 990 is a critical document for non-profits, which affects your legal status, public trust, funding, and operations. Here's why it is important:

Needed for Tax-Exempt Status

Form 990 is a mandatory legal requirement for tax-exempt organizations. In case you miss filing it for three consecutive years, the IRS will withdraw your tax-exempt status, so you may lose the privilege of accepting tax-deductible contributions and facing income taxes. Being compliant with Form 990 is vital to upholding your nonprofit's financial and legal integrity.

Establishes Transparency and Trust

Form 990 is a public record, available to donors, watchdogs, and the general public. It is a window into your nonprofit's mission, finance, executive pay, and governance practices. Openness establishes confidence with donors and promotes accountability by showing that your nonprofit responsibly directs its resources toward its declared purpose.

Key for Securing Donors and Grants

Grantmakers and donors closely study Form 990 to determine your nonprofit's program effectiveness and financial health. Properly prepared 990 not only shows that your organization is fiscally able but also promotes your credibility, which allows for easier attainment of donations and grants.

Also, Form 990 provides a yearly picture of your finances, programs, and staff, which gives insight into areas of excellence and room for improvement. By reading it, your leadership can make sure resources are utilized well and your plans are consistent with the goals of the organization to ensure long-term success.

Utilized by Watchdogs and the Media

Watchdog groups such as Charity Navigator use Form 990 to grade nonprofits. Having a high rating increases your profile and builds more donors. However, if Form 990 reveals lack of sound financial or governance procedures, it can hurt your public image and trust among prospective supporters.

Key Parts of IRS Form 990 and What They Reveal

IRS Form 990: Mission Statement and Program Reporting

The Mission Statement & Programs section defines the nonprofit's core mission and describes how it benefits the community. It details the particular programs and activities the nonprofit operates and the effects they have. This section assists in establishing that the resources are being utilized effectively towards achieving the nonprofit's mission. Through offering quantifiable results, it indicates to stakeholders the progress the nonprofit is making toward its objectives and holds it accountable.

Reporting Financial Data in IRS Form 990

The Financial Data section disaggregates the nonprofit revenue, expenses, and balance sheet components. It describes income sources like donations and grants, and illustrates how money is spent on programs, administration, and fundraising. The balance sheet gives a snapshot of assets and liabilities, aiding in evaluating the nonprofit's financial health and viability. This openness is critical to upholding donor trust and effective use of funds.

Executive Compensation Disclosures in IRS Form 990

In the Compensation category, the nonprofit discloses salaries and other forms of compensation paid to major employees and high-salaried contractors. This comprises executive compensation and benefits. In this category, transparency is such that salaries are fair and aligned with industry benchmarks. It avoids any suspicion of excessive compensation and compliance with IRS rules on nonprofit compensation.

Governance & Board Policies in Form 990

The Governance section outlines the nonprofit's board composition and governance practices, such as policies for conflicts of interest. It provides assurance that board members and employees are operating in the best interest of the nonprofit. Good governance practices are necessary to ensure ethical and transparent decision-making, which further leads to trusting relationships with the public and the assurance that the organization is operating effectively.

Schedule Attachments (Schedules A–R)

Additional Schedule Attachments (Schedules A–R) offer further information on activities. Schedule A, for instance, details the nonprofit's public charity status, and Schedule B enumerates major donors. Other schedules address issues like political activities, fundraising expenses, and foreign operations. The schedules provide the organization with full disclosure of its activities and comply with IRS standards.

IRS Form 990 Deadlines & Filing Requirements

Most tax-exempt organizations are legally required to file an annual return with the IRS by the 15th day of the 5th month following the close of the organization's fiscal year. For instance, if your fiscal year closes on December 31, your Form 990 must be filed by May 15.

Not filing for three years in a row has major penalties: the IRS will automatically eliminate your organization's tax-exempt status. After that, your nonprofit can be forced to file income tax returns and pay income taxes like a for-profit business. Although you can petition to get back your exempt status, it can take a long time and be very difficult.

It can be stressful to navigate the intricacies of Form 990, particularly when you're trying to make a difference. That's where Water and Shark comes in. Our staff of seasoned professionals is dedicated to nonprofit compliance, tax reporting, and strategic financial planning. We assist organizations in preparing and submitting Form 990 on time and in an accurate manner, ensuring complete IRS compliance while showcasing your finances in the best possible light. Join forces with Water and Shark to keep your nonprofit financially thriving, accountable, and mission centered.