The Foundational 5 for Accounting for Nonprofits

By Linda Forde, CPA

When you start a nonprofit, your passion can take you far in the opening process; however, you still must have some items in place to meet the requirements of a charitable organization. 

There are many items to discuss but these five are critical.

1) Completing Form 1023 or 1023EZ

This form is required unless you are a church. It registers you with the Internal Revenue Service and gives you tax-exempt status. 

Remember, this status is not only so your organization doesn’t pay taxes; it is also so you can receive donations that are deductible to your donors. Many donors look for that tax deduction.

The form must be filed online via on the IRS website but I recommend completing the form on paper first to make sure you have all of the information needed.  

Learn more: IRS – About Form 1023

2) Registering with the Department of Agriculture

If you are a Florida nonprofit you must register with the Department of Agriculture to legally solicit contributions. They have an online registration tool that is for charitable organizations, professional solicitors, and professional fundraising consultants.  

Small charitable organizations can complete a small organization application if they have less than $25,000 in total revenue in the prior year; however, as soon as you cross that $25,000 threshold, you will need to register via the online registration.  There is a great FAQ on the Department’s page that you should review as well.  

Learn more: Florida Department of Agriculture – Solicitation of Contributions 

3) Completing a Form 990

It is critical that you understand that you will need to complete a version of form 990 and what each version requires.   

Form 990N is for organizations with less than $50,000 in income in the year. 

Form 990EZ is for organizations with less than $200,000 in receipts and assets less than $500,000.  

Form 990 is for everyone else.

These forms now must be filed electronically. There are a few exceptions to the electronic filing requirement such as: a name change, a short period, that your 1023 application is pending or if the return was rejected and errors cannot be corrected.

Learn more:  Form 990 Resources and Tools

4) Telling your story

Along with submitting your 1023 and your 990 you will describe your programs.  It is critical that you tell your story on these forms with all of the passion and clarity that you can.  

Facts like the number of clients served and the impact you have will be critical once you have the data.  These forms are made public and are often a donor’s first source of information about your nonprofit.  

Learn more: Journal of Accountancy – Telling the nonprofit story through Form 990  

5) Retaining records

Finally, while it isn’t fun, or program related, it is critical that you start with proper records retention.  Keeping the right records and for the right period will allow you to support your Form 990. You can gather the data that you need to tell your story effectively.  

The IRS has a publication with information about all types of compliance for charities.  Records retention starts on page 14; however, I recommend reading the entire guide and asking your board to read the guide.  

Learn more: IRS – Compliance Guide for 501 (c) (3) Public Charities 

There are so many resources available for nonprofit entities it is easy to get overwhelmed. But these foundational five are critical.

Linda Forde, CPA  is the owner of The Forde Firm, a Jacksonville-based certified public accounting firm that specializes in services for nonprofits. It is also an AICPA Not-for-Profit II certified CPA firm.

Reach her online or at 904-725-5832.