When preparing your organization’s annual Form 990, there are a few common pitfalls to be aware of. A well-prepared Form 990 indicates that your organization is transparent, accountable, and effective. But if poorly done, it can cast doubt and create headaches with regulators, donors, and the public. Keep an eye out for these potential mistakes to help ensure your 990 shows your organization in the best possible light.
1) Don’t wait until the last minute…
To prepare your organization’s Form 990, you will need information from many different areas: financial statements, governance documents, program descriptions, compensation records, and more. That information may need to be provided by different people or departments, which raises the risk of delays. Starting the process earlier will help prevent any missed deadlines.
2) …But try to wait until your audit is done.
If your nonprofit is undergoing an audit, it’s best to wait until the audited financial statements are complete before filing your 990 (if possible). Inconsistencies between your audited financial statements and Form 990 can create confusion or require an amended filing. Work with your auditor to try to ensure an appropriate timeline.
3) Pay attention to governance questions.
Part VI of the Form 990 asks about your organization’s policies, like conflicts of interest, whistleblower protections, document retention, and more. While the IRS doesn’t require specific policies, answering “no” repeatedly can raise red flags. If your organization doesn’t have these policies, consider adopting them before filing.
4) Shine a spotlight on your accomplishments.
Part III of the Form 990 is the Statement of Program Service Accomplishments. This section asks you to describe your organization’s mission and major activities. This is your chance to demonstrate your impact. Be specific about what you did, who you served, and measurable results. Think of this section as a miniature annual report. Potential donors, partners, and other stakeholders may study it closely.
5) Double-check compensation reporting.
The IRS wants to know how you set executive compensation. This often involves board approval, benchmarking, and documentation. Be transparent and make sure the process is reflected accurately. Misreporting here is a common source of scrutiny.
6) Don’t forget any board members.
The IRS requires the names of all current and former board members who served during the year, even if they left before year-end. Leaving someone off the list, even unintentionally, can look sloppy or misleading.
7) Allocate your expenses correctly.
It can be tricky to properly allocate expenses between program services, management, and fundraising. You may be tempted to understate your fundraising or management costs to appear leaner. But if those allocations don’t align with accounting standards, you might wind up in hot water.
8) Don’t neglect Schedule O.
Schedule O is where you provide supplemental information to the IRS. This section allows you to add explanations and context regarding certain aspects of your 990. Use it wisely—especially if you need to clarify unusual situations, like a large one-time grant.
9) Remember public disclosure rules.
Your Form 990 is a public document. The IRS requires nonprofits to make their 990 available to the public upon request, and 990s are frequently posted online by nonprofit watchdog sites like Charity Navigator or Candid (GuideStar). Anything you submit on your Form 990 will be seen. This makes it important to set the right tone and keep all written descriptions polished and professional.
10) Be thorough, honest, and complete.
Your answer to many of the questions on Form 990 may trigger additional schedules or require further details. To make sure you understand each question and all of the implications, study the IRS instructions or consult an accountant for help.