The board of directors is the governing body of an organization. Individuals on the board are referred to as the “directors” and are responsible for building and overlooking the organizational structure of the organization. But what exactly is a board of directors and what is the role of directors within a nonprofit? Let’s find out!

What is a Board of Directors?

The board of directors is a fiduciary body with the sole aim of steering the nonprofit towards a sustainable future. They develop ethical governance and financial policies to make sure that the organization has enough funds to progress its beneficial or charitable mission. Every nonprofit requires a board of directors. The names, addresses, and other information regarding the directors are required to file the Articles of Incorporation with the Secretary of State.

Each state requires a minimum number of board members. This number typically ranges from 3 to 5 members. Each individual must meet the eligibility criteria set by the state to become a board member for a nonprofit. The criteria involve variables like the legal age, residency, citizenship, etc.

What is the Role of Directors in a Nonprofit?

The biggest responsibility of the board member is to act as the advocates of the nonprofit’s mission. They are also responsible for appointing a talented CEO to streamline the daily management activities and processes of the nonprofit. A nonprofit’s board of directors has three legal responsibilities.

• Duty of Care: It entails taking care of the nonprofit and its mission by ensuring prudent use of all available assets, including the facility, monetary funds, and people.   
• Duty of Loyalty: The Duty of Loyalty calls the board members to identify and disclose any conflicts of interest. They must make the best decisions for the organization without weighing in their personal interest in any way.
• Duty of Obedience: Under the Duty of Obedience, the board members are responsible for ensuring that the organization follows all applicable laws, rules, regulations, including its own bylaws. They must make sure that the nonprofit does not divert from its stated mission and continue to progress in the right direction.

According to Shai Goldstein, the CEO of A2Z Filings, “The role of board members in a nonprofit transcends the legal duties as they also play an extremely significant role in developing the nonprofit’s culture by providing invaluable guidance and foresight. They serve as an ambassador of the organization and may play a vital role in fundraising!”

 Let’s take a look at some other responsibilities of the board of directors in a nonprofit.

· Determine the Purpose and Mission of the Nonprofit

One of the most important responsibilities of the board of directors is to create a mission statement, which will become the basis for developing the purpose of the organization. The mission and purpose lay the foundation of the organization.

· Provide Financial Oversight

The directors also oversee the budget to ensure the nonprofit has adequate funds at all times. They provide financial oversight and monitor the financial activities to ensure the cost of programs, services, and other activities meet the budget. They also employ effective financial management practices to prevent theft, loss, or any kind of confusion.  

· Maintain Accountability

Apart from fulfilling the legal duties and acting as judiciaries of the assets, the board members also ensure the integrity and maintain accountability on every level in the nonprofit. They help develop and maintain a code of ethics for the nonprofit.  

· Recruit New Board Members When Required

The board members have a crucial role to play when it comes to welcoming new members on the board. However, in the interest of the nonprofit, this duty is often performed in collaboration with the CEO or the Executive Director.

· Develop, Monitor, and Strengthen the Nonprofit’s Programs  

Board members decide the budget for programs and services of the nonprofit. Therefore, it is essential they have detailed knowledge of participation trends and people served so that they can allocate budget correctly.

Can the Board Contain Family Members?

While the nonprofit’s board of directors can contain family, it is not always the best approach. The general rule of thumb is to include at least three board members who are neither family members nor have business ties with other members. If you do have family members on the board, this information must be disclosed to the IRS.

The guidelines set by the IRS indicate that no more than 49% of the members can be related by blood or marital relationships. This is to avoid insider transactions and ensure that the assets of the nonprofit are not used for personal gains by any member of the board.   

The Bottom Line

The board of directors is perhaps the greatest asset of a nonprofit organization. The better they understand and perform their duties, the more the organization will progress. If you are setting a nonprofit organization, one of the first things you need to do is appoint the board of directors, and A2Z Filings will take care of the rest.

We specialize in setting up nonprofits and helping them acquire non-exempt status as smoothly and swiftly as possible. We can also develop business plans and grant proposals to ensure your nonprofit has adequate funding. Contact us today or visit our website to learn more about our services.  

105(c)(3) organizations may be tax-exempt, but they need to file an information form with the IRS, known as Form 990. The form ensures that nonprofits continue to conduct their business in a way that is consistent with their beneficial or charitable goals. Officially, Form 990 is known as the Return of Organization Exempt From Income Tax in the United States. If you want to know more about what a Form 990 is and why it is important for nonprofit organizations to file a 990 tax return even after acquiring the tax-exempt status from the IRS, then keep reading!  

What is Form 990?

Form 990 is an IRS form that every nonprofit organization must file every year. The form collects financial information of the nonprofit and helps the IRS make sure that nonprofits do not exploit their tax-exempt status.

Once filed with the IRS, Form 990 becomes a public record, allowing individuals and other organizations to look up the finances of a nonprofit. Form 990 has three main variants, which can be filed in place of Form 990.    

• Form 990-EZ: Certain organizations with total assets less than $500,000 and gross receipt less than $250,000 may file this form.
• Form 990-N: This form is generally filed by small organizations with annual gross receipts less than or equal to $50,000.   
• Form 990-PF: This variant of Form 990 is filed by private foundations.

What Happens If You Don’t File Form 990?

Form 990 must be filed by the fifteenth day of the fifth month after the accounting period of an organization ends. Failing to file Form 990 on time can lead to a penalty.

Organizations with gross receipts less than $1,000,000 for their tax year files are penalized $20 per day for each day the return is late. The maximum penalty is 5% of the organization’s gross receipt or $10,000, whichever is less.  Organizations that have gross receipts greater than $1,000,000, the penalty is increased to $100 per day, to a maximum of $50,000. There are penalties for other acts, too, such as hiding or withholding information.

Organizations can lose their tax-exempt status in case they fail to file an information return for three consecutive years. However, the tax-exempt status may be reinstated if the organization is able to produce a reasonable cause for failing to file the annual returns or notices for three years.

Keep in mind that the IRS will return your Form 990 if it is incomplete or incorrect. Your form may be returned by the IRS if it is incomplete or missing schedules. This makes it important to consult a document filing service to ensure effective filing. The experts can also help you choose the right variant of Form 990 based on your organization.  

Why Is It Important for Nonprofits to do a 990 Tax Return?

Filing Form 990 annually is fundamental to maintain the tax-exempt status of a nonprofit organization. However, this is not the only reason why it is important for nonprofits to file a 990 tax return. 

· Increase Nonprofit’s Credibility

As Form 990 is made public, it is an easy way for donors to find the best charities that support their cause. Plus, its availability of financial information works to increase the credibility of the nonprofit, making it easier for donors to trust the nonprofit with their donations.  

· A Public Relation Tool

Form 990 can act as a powerful PR tool for charities. You can clarify your mission and include the previous accomplishments of the nonprofit to persuade donors to support your cause. If it is filled properly, it can help increase donations and monetary funds.    

· Acquire Grants

Foundations can view the financial information of your organization to gauge how sustainable your charity may be. If your figures are good, your chance of acquiring grants will increase significantly.

Information Required for Form 990

Here’s a list of basic information that is required to file Form 990.

• Legal name of the organization: The name of the organization stated in the articles of incorporation. 
• DBA names: These are the secondary names that may be used to refer to the organization. They are commonly known as Doing-Business-As names.
• Mailing Address: The current mailing address of the organization.
• EIN: The Employer Identification Number of the nonprofit.
• Information regarding Principal Officers: Name, address, and other information of the principal members of the organization, such as president, vice president, treasurer, secretary, etc.
• Annual Tax Year: It refers to the accounting period of 12 consecutive months. A tax year is specified in the by-laws and can be a fiscal year or calendar year. Books and reports of the annual tax year are required.
• Gross receipts: The total amount an organization received during the annual tax year.  

Other information may also be required. For instance, you may be required to clarify the nonprofit’s mission and goals, along with your previous accomplishments. Due to recent revisions, the form also collects information regarding any potential conflict of interest. Other information pertaining to financial accountability, such as compensation for employees and board members, may also be required.   

The Bottom Line

Now that you know what Form 990 is and why it’s important for nonprofits to file a 990 tax return, make sure you file it on time every year. However, keep in mind that this form is publicly available, which is why it must be filled correctly, diligently, and considerately. This is where A2Z Filings experts can help you.  If you want to file Form 990, then contact us today or visit our website to learn more about our services.  

Considering the tedious paperwork and legal terms and jargon, setting up a nonprofit organization can be quite confusing and daunting. Many people confuse nonprofits on a state level with nonprofits on the 501(c)(3) IRS level. It is must be noted that while many areas of these two types of organizations overlap, they are not entirely the same and the terms cannot be used interchangeably. So, what is the difference between nonprofits on a state level and 501c3 organizations? Do we need both of them to become tax-exempt? Let’s find out!

The Basics – Understanding Nonprofits and 501(c) (3) Organizations

The first thing that you need to know is that not all nonprofits are tax-exempt and not every organization that is tax-exempt is a charity.

There are various types of nonprofits and to complicate things further, 501(c) (3) organizations are divided into foundations and public charities. These organizations may have a 501 (c) designation that provides them with different benefits, depending on how they are classified by the Internal Revenue Service (IRS).  

What are Nonprofit Organizations?

The nonprofit status of an organization simply means that the organization is incorporated under state law. However, it does not necessarily mean that the corporation is tax-exempt.

If you want to register as a nonprofit organization, you will have to register at the state level. It requires various steps, including appointing a board of directors of the nonprofit and submitting the required paperwork to the state secretary. You will also have to submit the articles of incorporation that include general information about the organization. The process of setting up a nonprofit at the state level is very complicated because it requires you to be familiar with IRS language. The processing fee of setting up a nonprofit can range anywhere from $25 to $175, depending on your state.

Once the organization is approved on the state level and receives its nonprofit status, it is entitled to certain benefits that are offered by the state. For example, the nonprofit may not have to pay the sales tax to the government or they may become eligible to apply for certain grants.   

What are IRS Recognized 501(c) (3) Organizations?

All 501(c) (3) organizations start as nonprofit corporations. Once they receive their nonprofit status on the state level, they can apply to become a federally tax-exempt organization. 501(c) (3) organizations receive more benefits. For example, they don’t have to pay income tax and sales tax. Moreover, they receive a charitable status and their donors can write off donations.

Keep in mind that a nonprofit is set up with the intent of getting recognized by the IRS as 501(c) (3). Your tax-exempt status will be declined if the initial documents that you submitted while setting up the organization on the state level do not align with the 501(c) (3) or tax-exempt intent. In this case, the only way forward is to make the required amends to the documents and then apply for the IRS application.   

Do You Need Nonprofit Status on a State Level and 501(c) (3) IRS Recognition to Become Tax-Exempt?

This is one of the most commonly asked questions. Many people wonder if they can become tax-exempt by acquiring a nonprofit status on the state level. Well, your organization will certainly enjoy added benefits due to its nonprofit status. However, you must obtain the 501(c) (3) IRS recognition to become wholly tax-exempt.

 It is important to mention that there are over 50 different 501 (c) classifications that an organization can receive based on its purpose, processes, and activities. So, while every 501 (c) organization receives some tax-exempt benefits, not all of them are charitable. If an organization does not possess a charitable status, the donors don’t receive a tax write off.  

Now that you know the difference between nonprofits on a state level and 501c3 organizations, you can start the process of setting up a tax-exempt organization 501(c) (3). However, it is not an easy process. Most applications are denied simply because of avoidable minor issues and errors. So, if you want to get a tax-exempt status, you need to gain expert knowledge. You can rely on A2Z FILINGS to guide you through the process. We can help you prepare the paperwork and secure a tax-exempt organization 501(c) (3) status from the IRS. Contact us today or visit our website to learn more about our services.  

Starting a nonprofit organization can be an incredibly rewarding experience. However, starting and running a nonprofit is a serious business. Therefore, before jumping into setting up a nonprofit, it is important to learn why people set up nonprofits. Familiarize yourself with the benefits of nonprofits to decide if this type of opportunity is right for you and your business.

People start nonprofits for varying reasons. If your organization has a charitable or beneficial goal geared towards making a positive change in society, you may also want to consider setting up a nonprofit organization. It will allow you to avail various benefits from the state, scale the ladder to achieve your goal, and do charitable or beneficial work on a grander scale without any hassle.

 Moreover, nonprofit corporations are considered to be more credible and trustworthy as compared to informal organizations. Scroll down to take a look at why people set up nonprofits and what benefits you will receive by acquiring a nonprofit status instead of coming together informally to support a cause.  

1. Statutory Nonprofit Organization

A nonprofit organization has a perpetual existence, which means that the organization can act as a separate entity. In other words, regardless of what happens to the people involved in the business, the corporation will continue to exist as a separate entity. The corporation can continue while its directors, shareholders, and organizing members, executives, and employees come and go. Informal organizations do not have perpetual existence.

2. Limited Liability Protection

As opposed to non-statutory organizations in which the individuals entering the contract can be held liable, a statuary nonprofit organization is responsible for its own contractual and other legal obligations. Therefore, it protects the directors and other members against being personally held responsible for the debt or liabilities. In a non-formal organization, the individuals involved in the organization may be held responsible.

3. Tax-Exempt Status

One of the main reasons why people set up nonprofits is that the nonprofit status comes with various tax benefits, especially if your organization is recognized by the IRS as a 501 (c) (3) organization. These organizations can apply for tax-exempt at federal as well as state levels. However, IRS approval is required to become a tax-exempt 501 (c)(3)organization. They may be exempt from income tax, sales tax, property tax, etc.  

4. Accept Tax-Free Donations

Only formal nonprofit organizations allow you to accept tax-free donation money from individuals while also protecting your personal assets. Moreover, the nonprofit status helps the organization come off as more credible. As a result, donors will trust your organization, leading to a spike in the donation money.   

5. Low-Cost Postage Rates

Another advantage of setting up a tax-exempt organization 501 (c) (3) is that your organization will receive discounts on US Postal service. Running a nonprofit generally involves the use of UPS services on a regular basis. As a tax-exempt, nonprofit organization, you can avail discounts on bulk mail to save a considerable amount of money.   

6. Access to Private and Public Grants

Your organization may become eligible to apply for various private and public grants after gaining a formal nonprofit organization. It must be noted that certain grants and public allocations are reserved only for 501(c) (3) organizations. Therefore, setting up a tax-exempt organization 501 (c) (3) increases your chance of receiving a grant significantly, making it easy to receive operating capital.   

7. Registered Agents

Statuary nonprofits and LLCs are required to appoint a registered professional agent to ensure their documents remain up to date. A registered agent can also help you maintain and deliver various critical, legal, or time-sensitive documents that may be required in case the organization is ever sued.  

8. Social Entrepreneurship

The biggest benefit of setting up a tax-exempt organization 501 (c) (3) is that it makes it easier for you to work for your cause and bring a positive change in society. It is a rewarding experience that allows social entrepreneurs to create something bigger than themselves. A nonprofit organization is not just a company or a business – it’s a legacy.   

However, it must be noted that the process of setting up a nonprofit, especially a tax-exempt organization with a 501(c) (3) status, can be very challenging. From preparing comprehensive paperwork to filling out several forms, a lot of work is required to start up a tax-exempt organization 501(c) (3). Most people find it extremely difficult to understand the official terms and jargon of the IRS language. This is another challenge that ultimately results in the denial of nonprofit or tax-exempt status.

The Bottom Line

Now that you know why people set up nonprofits, you can decide if starting a nonprofit is the best course of action for you. If setting up a tax-exempt organization 501 (c) (3) aligns with your goals, it is best to let the professionals handle this task for you.

You can rely on A2Z Filings to guide you through the process. We can help you prepare the paperwork and secure a tax-exempt organization 501(c) (3) from the IRS. We can also write innovative business plans and winning grant proposals for you. Contact us today or visit our website to learn more about our services.