The Scariest Part of the 990 Tax Form

scariest part of 990 tax reform 1

Guest Blogger – David Holmes

If you’re part of a 501(c)3 nonprofit, you can rest assured that your organization has to file some form of the IRS form 990 every year.  And if you’re not in the accounting/financial division of your organization, you may think that the 990 holds no great interest for anyone but the IRS.

You’d be wrong.  Lots of people look at your 990 every year.  Most of them are deciding what kind of an investment you might be.  Giving to charity involves a lot of comparison shopping—and serious financial analysis.  Does your organization put its money where its mission is? Sure, there are other ways to decide.

GuideStar (now Candid)
Charity Navigator , and other websites can help the average funder or donor make decisions. But all of those sites use the 990 as a starting point.

What’s the scariest line in a 990?  It might be line 25 in Part IX.  This line totals four columns:  Total expenses, Program services, Management and general, and Fundraising.

This line can tell the savvy investor whether your nonprofit spends its money wisely.  If the sum of the last two columns (M&G and Fundraising) is a larger percentage of your total expenses than the second column (Program) is, that can be a very bad sign.

Those last two columns are the scary word OVERHEAD. If you are spending more towards Overhead than toward program, then your organization’s mission may suffer.

Experts differ in what might be the best percentage, but the larger the overhead percentage, the more your donors might be scared off.

How do you make your 990 less scary? Join Dave and The Center as we go over many ways to do this in the upcoming workshop, Using the 990 to Tell Your Nonprofit’s Story  on June 12, 2019.  Don’t be afraid- no accounting necessary!

Dave Holmes is the Cleveland Lead at Foundation Center Midwest, coordinating the training, reference, and research services for the Midwest region. He returned to the Foundation Center in 2015 from a position as Senior Consultant at Grants Plus, writing grants and doing research for a variety of large and small nonprofit clients.