Attention nonprofits…are you ready for the upcoming Form 990 deadline? Filing Form 990 correctly is crucial for maintaining your nonprofit’s transparency and tax-exempt status. Mistakes can lead to penalties, reputational damage, and compliance issues. Here are five common errors to avoid to ensure a smooth filing process.

1. Missing or Late Filing

Failing to file on time—or at all—can result in hefty penalties and loss of tax-exempt status if missed for three consecutive years. The Form 990 is due on the 15th day of the fifth month after an organization’s tax year ends (May 15 for calendar-year filers). A six-month extension is available via Form 8868. Late filers with annual gross receipts exceeding $1,274,000 are subject to a penalty of $125 per each day failure continues with a maximum penalty of $63,500 per return. If electronic filing is required but a paper return is submitted instead, the IRS considers it a non-filing. Incomplete forms can also be treated as late or unfiled.

Make sure you keep up with timely and complete electronic filing to stay compliant.

2. Outdated or Incomplete Narratives

Many sections of Form 990 require explanations of activities and governance. Copying last year’s responses without review can lead to outdated or unclear reporting.

Every year, make sure that you carefully review the IRS’ questions and update narrative responses so they are accurate, relevant and fully address the required information.

3. Incomplete Board Member Information

You are required to list all voting board members on Part VII-A (Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees and Independent Contractors) of Form 990. This must include all board members who served during the tax year, even if they only served for one day. If board terms don’t align exactly with the tax year, you may need to report two different board groups. Let’s say your tax year ends in December, but board terms run from July-June. You must include both the January-June and July-December board members.

It's helpful to keep a detailed record of board member transitions throughout the year—this will make 990 reporting much simpler.

4. Incorrect Reporting of Unrelated Business Income (UBI)

Not all nonprofit income is tax-exempt. Revenue from activities unrelated to the organization’s mission—like advertising income—may be taxable. Income is considered UBI if it meets three criteria-1) it comes from a trade or business. 2) it is regularly carried on and 3) it is not directly related to the organization’s exempt purpose.

If your nonprofit has potential UBI, consult a tax professional to ensure proper reporting and compliance.

5. Misclassifying Expenses

Some nonprofits must categorize expenses on Form 990 by function—such as program services, management and general, and fundraising. Misclassifying expenses can lead to inaccurate financial reporting, making it unclear how funds are used.

Proper classification is crucial for transparency with donors, grantors, and state regulators, who often review Form 990 to assess how much funding supports programs versus overhead.

To stay compliant, it helps to track expenses by category. This will make Form 990 reporting smoother and more accurate.

Wondering if your filing is up to par? We can help.