Your first Form 990: a guide for new nonprofits

The first year of a nonprofit is busy: incorporating, getting an employer identification number (EIN), opening a bank account, applying to the IRS for recognition of exemption, raising the first dollars. The annual return can feel like something for later. It isn't. The filing clock starts with your first tax year, and the IRS expects a return whether or not it has finished reviewing your application.

When your first return is due

Every annual return in the Form 990 family is due on the 15th day of the 5th month after the end of the tax year. What new organizations need to work out is when their first tax year ends.

• It starts when the organization begins to exist, usually the date of incorporation or formation.
• It ends on the last day of the accounting period you chose: December 31 for a calendar year, or the last day of another month for a fiscal year.
• If you formed partway through the year, your first tax year is a short year (a period of less than 12 months). It still gets a full return, and it is due on the normal schedule after the short year ends.

A short first year that ends before December 31, 2025 may be filed on either the 2024 or the 2025 Form 990, with the years in Schedule A shifted to match. Check the "Initial return" box at the top of page 1 if this is the first time the organization is filing a Form 990 and it hasn't filed a 990-EZ, 990-PF, 990-T or 990-N before.

The effective date of exemption

When the IRS approves your application, the determination letter states an effective date. If you file Form 1023, 1023-EZ, 1024 or 1024-A within 27 months from the end of the month in which you were legally formed, recognition generally reaches back to your formation date. That means every tax year since formation is a year in which you were an exempt organization, and every one of them needs an annual return.

If you apply later than 27 months, the effective date may be later than your formation date. The years before it are not covered by the exemption, and they raise separate questions about income tax returns. Get advice before you file anything for those years.

Filing while your application is pending

Many organizations reach their first due date before the IRS has decided their application. You still file. The IRS says an organization that claims exempt status but hasn't received a letter recognizing it is generally required to file its annual return, and if the return comes due before you apply or while the application is pending (including an appeal), you must e-file it with all schedules.

On Form 990 or 990-EZ, check the "Application pending" box in item B. You check it whether or not you have actually filed your application yet; it tells the IRS you are filing in the belief that you are exempt. If this box is checked, you must complete all parts of the return and every required schedule.

Two more things apply from the first year:

• A return filed while your application is pending is public, like any other exempt organization return. See public disclosure.
• If you have $1,000 or more of gross income from an unrelated business, you also file Form 990-T.

Which form fits a first year

Most new organizations are small, and the IRS gives them extra room under the 990-N test. In its first tax year, an organization's gross receipts are "normally $50,000 or less" if it received, or donors pledged, $75,000 or less. Between one and three years old, the test is an average of $60,000 or less over the first two tax years. From year three on, it is the familiar $50,000 three-year average.

Count pledges in that first-year number, and remember that gross receipts are measured before costs. A launch gala that grossed $40,000 counts as $40,000, even if it netted much less. Our guide to gross receipts explains what to include.

The 990-EZ and Form 990 thresholds ($200,000 of gross receipts and $500,000 of total assets) apply in the first year exactly as in later years. Private foundations file the 990-PF from the start, and most supporting organizations can't use the 990-N at all. When in doubt, see which Form 990 to file.

Schedule A for a new 501(c)(3)

A 501(c)(3) public charity that files a 990 or 990-EZ attaches Schedule A. For its first five tax years as a 501(c)(3), a publicly supported charity checks the box on Schedule A, Part II, line 13 (or Part III, line 14 for a 509(a)(2) organization) and does not complete the public support calculation on the filed return.

The IRS instructions recommend doing the calculation anyway on a copy you keep. In year six you must pass the public support test on a five-year computation period that reaches back into those early years, and organizations funded mostly by one founder or one foundation can find themselves short. The checkbox also lets a new charity use the special 2% rule on Schedule B. Our Schedule A guide walks through the test.

Records to keep from day one

The IRS doesn't require a particular bookkeeping system, but your records must support every number on the return. Publication 4221-PC suggests:

• Permanently: your articles of incorporation and bylaws with amendments, your exemption application, your determination letter and your board minutes.
• Gross receipts: donor correspondence, pledge documents, deposit slips, receipt books, invoices and card processor statements, showing the source and gross amount of each receipt.
• Expenses and assets: invoices, receipts, contracts and bank statements, plus purchase and sale records for property.
• A donor list: names and amounts of contributions and grants, which you need for Schedule A, Schedule B and donor acknowledgments.
• Employment tax records, if you have staff, for at least four years after the fourth-quarter filing for the year.

Most other records should be kept at least until the statute of limitations runs, generally three years after the return was due or filed, whichever is later. Grantors and states may require longer.

Don't forget the states

Many states require charities to register before they ask the public for money, and some require an annual report or a copy of the 990. These rules are separate from the IRS. See our guide to state charity filings.

990IRS.com is a private company, not the IRS. This page is general information, not legal or tax advice for your organization. Example organizations and figures are hypothetical.