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Remittance slip example for Nonprofit

hey everybody uh David McCree CPA here I'm getting a lot of people asking me that they send me emails and they say hey our little organization went over fifty thousand dollars for the first time this year so we need help filing our 990ez we've never done that before and so a lot of times well probably more than half the time when I explained to them what the fifty thousand dollar threshold really is and how you calculate it they realize they they actually can continue filing their 990 and their electronic postcard so I just want to go over today what the IRS means um when they say fifty thousand dollars or less in gross receipts and you you're eligible to file the electronic postcard um that's really not a correct statement to say well if if your gross receipts go over fifty thousand you've got to file the 990ez what the IRS says is and you can see it right here on the page if gross receipts are normally fifty thousand dollars or less so what does that mean normally what that means is it's a three-year average okay and you add up gross receipts for each year for the year you're filing and the previous two years you get the total for the three years you divide by three if that's fifty thousand or less then you're eligible to file the electronic postcard 990 n the IRS has special rules for calculating that average if your organization has been in existence for fewer than three years and you can see that on the screen now it tells you how to calculate it so we're gonna I'm gonna explain to you in detail the calculation uh if you're interested and um so here it is right on the IRS website an organization's gross receipts are considered to be fifty thousand dollars or less if the organization has been in existence for one year or less and has received or donors have pledged to give 75 000 or less during its first tax year okay so this is important so let's say it's your first year let's assume that you're keeping your books on the calendar year January 1st through December 31st um and it says have you been in existence for one year or less all right so that means uh if you formed your organization on you know December 31st that's when you were Incorporated okay that's your first year December 31st it's one day and the IRS considers that you know one year or less okay so they're going to expect some kind of a filing even though you've only been in existence for one day during your first year you still have a filing Due on May 15th okay it's going to be a 990 um in the electronic postcard unless you received a big donation or a pledge on that date okay so this is important to understand that pledges are included here so even if you haven't received any money on December 31st if somebody says uh I'm gonna give you um you know seventy six thousand dollars on um tomorrow you know that's a pledge and so it goes over the 75 000 limit so you'd have to file a 990 EZ actually for the first year that's a very rare and this is just theoretical okay just so you understand the concept um most organizations have little or nothing the first year and and they're eligible to file but the the 990 n but as you can see you can you can have up to 75 000 your first year in uh donations or pledges and you can still uh file the uh the 990 n electronic postcard so what if you've been in existence for more than one year okay so if you've been in existence between one and three years and you've averaged sixty thousand dollars or less in gross receipts during each of the first two tax years that's actually awkwardly worded there what it means is um add add all of your gross receipts for the first year plus all of your gross receipts for the second year and divide the total by two and that gives you your average gross receipts for those two years okay and if it's um sixty thousand or less then you can file the uh 990 n electronic postcard and as you can see that's more than fifty thousand okay but remember this just applies to the first uh three years uh so finally if the organization is at least three years old and has averaged 50 000 or less in gross receipts for the immediately preceding three tax years okay so that includes the year you're filing plus the prior two years okay so this is this is the irs's guidance uh so now let's have a look at um some examples and first let's talk about what gross receipts are okay so this is uh not evident to everyone gross receipts basically means all deposits to your business bank accounts plus the fair market value of items that are donated okay and you do not count transfers so if you move money from your savings account into your checking account you don't count that as income in your checking account okay it's just you're just moving money from your left pocket to your right pocket it's not an increase in income but all your deposits are going to be income items except transfers and and those are easily pulled off your bank statements if you had any uh items donated like clothes or food or a car or office equipment or something like that um the fair market value of those items is gonna it doesn't appear in your bank statement but it needs to be added in as gross receipts okay if somebody donates you know baked goods to sell um you know that the fair market value of those donuts you know that's um that's gross receipts okay so here's some examples of gross receipts uh corporate sponsorships uh or corporate donations grants from private foundations government grants donations of any kind from corporations and individuals or any other type of business entity you know partnership donations from Donor advised funds sales of items that were purchased for resale registration fees that you may have charged for conducting workshops or classes or some program function or event entrance fees charged select for a special event or a fundraiser or program event membership fees charge sales of proceeds of donated stock s right somebody donates stock to you um and then you sell it you've got two donations there for purposes of gross receipts they're actually double counted so if somebody donates ten thousand dollars worth of uh Microsoft stock to you and then the next day you sell it for ten thousand dollars okay you've got gross receipts of the donation of the stock that's ten thousand dollars and then you've got proceeds from the sale the next day of ten thousand dollars so that's that one donation generates twenty thousand dollars in gross receipts I know that seems unfair it's double counting but that's the way it is for purposes of gross receipts calculation sales proceeds have donated merchandise same thing the day they donate it fair market value of the item donated that's gross receipts and then if you sell it sales proceeds are gross receipts fees charge for services rents charged if you're renting out you're building rents or gross receipts and then we've already talked about this the fair market value of donated items and the fair market value of donated stock however it's important to understand that donated Services okay the value of donated services or the free use of equipment or space like if you're getting free rent okay or the free use of a truck um that value that is not considered gross receipts for purposes of the 990. so you know what gross receipts are let's look at an example now this um covers gross receipts test for the 990 electronic postcard eligibility for organizations up to three years old all right so what I've done is I've made this little table here and just for reference what you saw earlier on the IRS website the guidance for an organization uh fewer than three years old or up to three years old I've just reproduced it here just for your reference okay and also here um so this organization started in 2020 and it's currently 2023 and we're trying to decide um what we what we need to file now if we can look back here and we can see that for the first year there were zero gross receipts okay so the average is zero and of course under the guidelines they're eligible to file the 990 in for 2020 their first year now in 2021 let's say they had thirty thousand dollars in gross receipts well the average over the two years is 5 is 15 000 right so the thirty plus zero divided by two that's fifteen thousand now under the guidance as long as it's sixty thousand or or less you can file the 990 n so again second year eligible for the 990 n in 2022 they had a hundred and twenty thousand dollars in gross receipts average there is exactly fifty thousand okay okay 120 plus 30 is 150 000 plus zero still 150 divided by three that gives you fifty thousand so even though they had um fifty thousand they're still eligible for the 990 n okay now let's look at another example um let's uh say that the organization received 55 000 in its first year 60 000 in its second year and 34 000 in its third year all right so as you can see um the average in the first year is 55 000 and that's less than the 75 so it can do the 990 n the second year it received 60 000 in gross receipts the average is 57 500 so that's still 60 000 or less still 99 990 and eligible in 2022 the third year they received 34 000 in gross receipts their average here is 49 667 so that's still just under the fifty thousand dollars okay and this is even though they went over the 50 000 here in the year uh two which brought the average up they're still eligible for the 990 n what about if 20 in 2022 they received thirty six thousand dollars in gross receipts that pushes their average up above 50 000 and so now they have to file the 990ez okay so you get the idea you see how it plays out here now this again was for a new organization all right and essentially what you're looking at here for those curious um I've just got a formula well I've got a formula here to calculate the average of the gross receipts and then I've got another calculation here that determines whether it's a 990 n or a 990ez based on a formula which you can see up here now let's look at another example this is for an older organization and I'm not going to spend a lot of time on this one but you can see the organization has been in existence since 2016 and so now it's 2022 2023 and we're trying to decide what to file for for 2022 okay and we can plug in various numbers here but again you're out of your first three years so you're just going to look at the current year which is which is 40 000 in gross receipts plus the two prior years okay so these are the three years we'll add together and divide by three and here it comes up to 46 60 67. and they can follow 990 n for 2022. now notice here that for 2021 they had to file a 990ez and also for 2020 they had a file in 990ez so you can actually go back and forth depending on what the average is you might have to you might be filing 990 ends for a while and then your gross receipts average the three year average drops below the 50 000 drops 250 000. uh you can go back to filing that 990 n if you so desire okay until your average comes back up above 50 000. and that's what's happened in this example um if we had a little more gross receipts here let's say let's say we had uh forty five thousand that still doesn't push us over 55 000. that finally pushes us into a 990ez for 2022. okay back at fifty thousand we can still file a 990 n so you can see how important it is to track your gross receipts and be aware of how this works a lot of people you know would would just say um like for 20 and 2019 here for instance they might say oh you know our gross receipts went over fifty thousand so we need to file in 990 easy but no because you're taking all three years into account this average is only Thirty one thousand so this organization could still file the 990 in for the 2019 year see that's where a lot of people get get caught so I think I've more than covered that um now what about um if you're close to the deadline and you need to file an extension well for the 990 n there is no extension okay you you're supposed to file it by the due date but if you don't it's just not a big deal because there's no monetary penalty you could actually file at any time after the due date uh without a penalty unless you've missed three years in a row if you if you miss filing anything for three years in a row you automatically lose your tax exempt status as for the 990ez if you can't file it by the due date then you're going to need to request an extension a six months extension of time to file be aware that all of these returns now have to be filed electronically okay the IRS is not going to accept 2022 or 2021 return file on paper they have to be filed electronically or they will send it back filing an extension the easiest way to file an extension now you can still file an extension on paper with form for Ada 68 but I do not recommend it at all because the IRS is so slow in processing things right now so slow okay and a lot of times they don't process it at all and you could end up with a penalty so the best thing is to file one online um you know I suggest you look at this organization I'm not promoting them they used to be called Express tax exempt they've changed their branding to tax 990 they seem to be the market leader right now in online filings and you can go to their website tax990.com and they give you a lot of information here you can scroll down and hear form 8868 that's your extension you just click on e-file now and then they'll you know you'll have to register and they'll walk you through it and it's it's pretty inexpensive you can see their pricing here for the 8868 it's about 15 bucks okay so that's a whole lot cheaper than I could prepare it for you so that should do it um Good Luck