Filing tax returns isn't the most thrilling use of your time - especially if you’re running an exempt organization, charity, or nonprofit. Even though you carefully file your 990 form with the IRS, the slightest error can trigger a red flag - now you have agents from the Internal Revenue Service going through your bookkeeping and noting any compliance, risk management, or governance issues.
You’re caught up in an audit that could cost you thousands of dollars in penalties all because of a filing error that can be corrected if found earlier.
The IRS Form 990/990-EZ comes with pages of long, drawn-out instructions - all you want to do is give the IRS what they need and get back to running your tax-exempt organization. It’s possible to file your tax return without fearing an audit - just be mindful of these five common mistakes that are easily avoidable.
Filing the Incorrect Form
There are a handful of IRS return forms geared towards section 501(c)(3) organizations, depending on specific qualifications. Filing with the wrong form can set you up for an audit along with steep IRS penalties. Choose the type that’s most applicable to your tax-exempt organization:
- Form 990-N (e-Postcard) - Organizations with less than $50,000 in gross receipts
- Form 990-EZ - Organizations with gross receipts over $50,000, but less than $200,000, and total assets less than $500,000
- Form 990 (Long) - Organizations with gross receipts over $200,000, and total assets over $500,000
Not all tax year periods for exempt organizations are the same - some may operate on a Calendar Tax Year while others are on a Fiscal Tax Year. The deadline to file your 990 form will always be the 15th day of the 5th month after your tax year end date - that could be this upcoming May 16th deadline or the 15th of any month based on your organization.
Submitting an incorrect year could put you at risk of paying late fees, or even worse, an audit. To help determine your filing year, and the differences between a calendar and fiscal tax years, check out our easy, yet informative blog, “Incorrect Tax Year? Know What Year You’re Filing.”
Failing to Complete Schedules
All exempt organizations are required to have a Schedule A submitted along with their IRS Form 990/990-EZ. Based on other information such as organization activities, donations, and regulations, you might have to file some different schedules. Your completed schedules supply the IRS with more detailed information about your answers. If the corresponding schedule to support your reports isn’t there, that’s an automatic red flag for the IRS.
Filing with Incomplete or Inaccurate Information
If you don’t know, something like this can cause an immediate commotion with the IRS - such cases can include an unchecked box, imbalances with amounts, or even one wrong letter or number with your EIN or organization name. Any errors can have your form deemed “incomplete” by the IRS, which can lead to late filing fees draining your funds.
Failing to File an Extension Form
To put things in perspective, you won’t automatically get audited by not filing a tax extension; on the other hand, a late form without reasonable explanation could raise questions, which can very well lead to an audit. The IRS Form 8868 can give you three extra months to file your 990 form. You must submit before your original tax due date - any later is a rejection leaving you with potential late fees.
The best way to avoid these common filing errors is to e-file your tax-exempt return form with ExpressTaxExempt.com. Your form is automatically checked for any of these mistakes and more - way before you transmit to the IRS. If you get a rejection for any reason, ExpressTaxExempt.com points out exactly what needs to be changed - saving you time and effort. And you can re-transmit to the IRS at no extra charge.
Need extra time to file? You can also e-file Part I of Extension Form 8868 with our services. Our e-filing experts in Rock Hill, South Carolina are more than happy to assist you with the e-filing process. Call us at (803) 514-5155, Monday through Friday from 9 a.m. to 6 p.m. EST. Or email us 24/7 through support@ExpressExtension.com.