Getting tax season right can be complicated and time-consuming. To maintain your nonprofit’s tax-exempt status, you must file Form 990 annually. The Form 990 gives the IRS an overview of what your organization does, how you govern yourself, and other essential financial information. Making a mistake on this form can cause problems for your nonprofit later on, which is why filing the form correctly is so important.
You might not think that there are any additional benefits to a correct and timely form besides maintaining your tax-exempt status. However, your Form 990 is also a great public relations tool. Through your Form 990, you have the potential to tell everyone from donors to grant committee members your nonprofit’s story.
Because Form 990s are already publicly available, you have the opportunity to share your nonprofit’s goals and demonstrate that your finances actively contribute to your stated mission. In other words, it is another tool you can use to inform the public about your organization. In this article, we’ll explain how your Form 990 can help you:
We’ll also take a look at how you can use your Form 990 as a foundation for your annual report so that your nonprofit can be transparent with your finances. And if you’re still feeling worried about filing your form correctly, this File990 guide to nailing your Form 990 answers the most common questions. Let’s dive in!
1. Promote transparency for donors.
Did you know that only 10% of Americans are optimistic that the nonprofit sector will get more trustworthy over time? The sector’s history of corruption has made it that much more difficult and important for honest nonprofits to establish strong relationships with their donors, particularly because supporters will be more hesitant to donate if they don’t trust charitable organizations. So how can you counteract the negative feelings about nonprofits?
One of the best ways to build trust with your supporters is by being transparent with your finances. That means being open with all of your tax forms, whether you file the Form 990, the 990EZ, the 990PF, or other forms.
Although these forms are publicly available, you can be intentional in your transparency by encouraging your supporters to take a look. Here are some ways to be candid with your finances:
Openness with your finances will go a long way to establish yourself as a trustworthy and reliable brand. Supporters will feel more comfortable donating to your organization because they will have a clear sense of where their contributions are going.
2. Strengthen grant applications.
Not only do grants provide financial support for your organization, but they can also boost your visibility and your reputation. Therefore, grant-awarding foundations are particular about who they select as recipients. These grantors want to ensure they’re associated with financially and socially responsible organizations.
Let’s say you’re applying for a major grant for your nonprofit. The grant-awarding committee needs to review your finances in detail in order to determine if your spending choices adhere to your stated mission.
There could be two scenarios here: one is that the grant-awarding committee reviews your nonprofit and sees that you’ve already gone the extra mile to remain transparent about your finances and explain how they’ve helped you advance your mission.
The other scenario is that you fail to provide additional context or information to supplement your Form 990. While the form itself gets the job done in renewing your tax-exempt status, your lack of context could lead to misunderstandings or incomplete information about your programming. To learn what your organization does, your reader has to sift through pages and pages to find what they need to know. The experience is frustrating and puts a damper on your application.
An excellent Form 990 can be the determining factor for whether or not your nonprofit receives a grant. Think of your Form 990 like a snapshot of your organization. It describes the stated mission, financial health, and operations of your nonprofit, all of which is summarized neatly for readers. A clear and well-written form can make a positive impression with a grant-awarding committee and increase your chances of gaining financial support.
3. Enhance board member recruitment.
Trying to find the perfect board member is a challenge. You need to find the right fit and the prospective board member needs to want to join your organization. However, your Form 990 could be a helpful tool to seal the deal.
Because joining a nonprofit’s board is a big commitment, candidates want to be sure that they are making the right decision. What better way to demonstrate your nonprofit’s contributions to the community than through your Form 990? You already clearly outline your mission and how you disperse your funds, and the legitimacy of the form will reassure your board member that everything you’re sharing is relevant and accurate. You can also list your three largest program services, which will highlight your priorities to a prospective board member.
Whether your prospective board member was a former volunteer or a major donor, sharing some baseline information about your organization’s financial operations can be very influential in their decision to serve.
Plus, once you’ve picked the right board member, you can reference your Form 990 during orientation to provide the most up-to-date financial information. This way, your newcomers will get a holistic view of your nonprofit’s purpose and its financial information. You can find more orientation tips in this Boardable guide to onboarding new members.
4. Provide an opportunity for supporters to learn more.
The average supporter likely got behind your nonprofit because of your cause, not necessarily because of your financial operations. However, providing your supporters with some insight into the inner workings of your nonprofit can help solidify their trust.
Your volunteers might also benefit from learning more about your nonprofit through your Form 990. Inviting volunteers to learn more about how your nonprofit works from the ground up might help them situate the importance of their work in your organization’s day-to-day operations. Like prospective board members, your volunteers would also be very interested in your nonprofit’s top three program services, which will help them gain a better understanding of how their hard work keeps your organization running.
Your Form 990 is also a great tool to communicate to potential supporters what your nonprofit is all about. Because you’ve already spent time putting together your Form 990, you could use similar language in some of your promotional materials on your website or social media accounts. Sometimes simplifying your nonprofit’s work into a couple of sentences is one of the hardest challenges of all, so if you’ve already done the work, why not reuse it?
How to Get the Most Out of Your Form 990
Now that you know all of the benefits that a strong Form 990 offers, how can you get the most out of it? You should think of your Form 990 as a way to make a case for your nonprofit. Here are some tips to enhance your Form 990 for any type of reader:
Your Form 990 is a powerful way to connect with anyone who is interested in your organization. Rather than looking at it as a tax-related chore, try to think of your Form 990 as a document that represents what your organization is all about. Keep in mind that it’s public facing, so you might as well offer the most transparency and clarity that you can!
At first glance, your Form 990 might not seem to have many additional benefits, but it can provide important information about your nonprofit in a convenient and effective way. Whether you’re trying to attract new donors, applying for a grant, or simply want to improve your organization’s transparency, making your Form 990 easily accessible is a great place to start.