Show Me The Money

Last month, we started talking about the process of establishing a foundation, and now we turn to one of the most important aspects of running a foundation: bookkeeping. In order to stay in the good graces of the IRS, and maintain your tax exempt status, you are required to file an annual tax return called a Form 990. Depending on what kind of 501(c)3 you are, there are different flavors of 990. For us, as a private foundation, we are required to file a 990-PF each year following the end of our fiscal year, which we have chosen to align with our anniversary, so ours begins on September 1 each year.

The forms you are required to file are designed to provide full transparency into the financial operations of your organization, which is the price you must pay for a tax-free existence. It also affords the American taxpayer some level of confidence that there are no shenanigans going on behind the scenes, and that if they make a donation to a 501(c)3 charity, that their money is going to be used for what is advertised, and not so some rich board member can make their yacht payment.

From the viewpoint of cost and simplicity, you might want to create a nonprofit that can utilize the 990-N “postcard” return. This form takes the least amount of time to fill out, and it is free to file the return on the IRS website. Anything more complicated than that, and you are still required to file your return online (the IRS eliminated paper returns for nonprofits in 2020), however, there is no cost-free option. The IRS provides a list of their partners with whom you must work, and therefore you have to pay whatever they are charging that year for returns. Most of them are aligned with or owned by one of the big tax firms (Intuit, H&R Block, etc.) and a few of them are independent software companies. But if you are a small operation like we are, you will no doubt be frustrated by the lack of options and the cost of filing, which this year was $130 for us.