It is unfortunate to say, but many people do not trust charities to use their donations appropriately. In a world of instant news, we are often faced with corruption and scandals surrounding nonprofits. Charities are held at a higher standard and need to improve their transparency in order to maintain donor trust.
When potential donors can easily find your organization’s information, they are usually willing to be more generous with their donations. Here are five ways to improve your charity’s financial transparency.
5 Ways to Improve Your Charity's Transparency
1. Confirm Your IRS Tax-Exempt Listing
When the Internal Revenue Service (IRS) declares your nonprofit organization as a tax-exempt public charity, the organization is added to the 501(c)(3) nonprofits organization list. Charities that remain in good standing with the IRS are kept on the list. Confirming your IRS tax-exempt listing will provide transparency to the public and will, in turn, increase your donor base and donations.
2. Establish Your GuideStar Listing
If your organization is registered with the IRS as tax exempt, you have a Nonprofit Profile on GuideStar. In addition to GuideStar publishing your IRS Form 990 information, you can also include information about your organization's accomplishments, board members, goals, mission, needs, and programs. It is important, especially if your organization is a smaller nonprofit, to regularly update your Nonprofit Profile in order to connect with new donors.
3. Become Accredited
You might believe the Better Business Bureau (BBB) is only for for-profit business, but there is also a division that specifically caters to the needs of nonprofits. This division, known as the Wise Giving Alliance, provides an at-a-glance accreditation seal for nonprofits to proudly display on their websites.
The Accredited Charity Seal is given to nonprofits that meet the BBB’s standards for accountability. Even if your nonprofit chooses not to apply for Wise Giving Alliance Seal, its standard for accountability is an excellent guide for ethical practices.
4. File IRS Form 990
As a nonprofit, your IRS Form 990 is in the public domain. Some nonprofits choose to post their filed Forms 990 on their websites for easy public access. You can also upload your Form 990 to your GuideStar Nonprofit Profile as soon as you file it with the IRS. When those in the public sector have questions regarding your financial efficacy, aside from contacting a board member or senior staff member, they can also see your tax return for themselves.
Your nonprofit’s tax exemption will be automatically revoked if you fail to file your 990 for three consecutive years. Failure to file is a red flag for donors. If you can’t be trusted to maintain your tax-exempt status, how can you be trusted with donor’s charitable gifts?
As a charitable organization, you must embrace the values of accountability and transparency as an ethical leader in addition to maintaining IRS compliance. By posting your tax return, you reinforce your organization's dedication to accountability.
5. File Past Financial Information
If you have missed filing your 2015 or 2016 (or both) 990, file them immediately.
Small nonprofits whose gross receipts are less than $50,000 per year need to file IRS Form 990-N, the Electronic Notice (e-Postcard). There is a common misconception within the nonprofit community that small nonprofits do not need to file a Form 990-N annually; however, your nonprofit’s tax-exempt status will be revoked after three years of not filing Form 990-N.
Form 990-N must be filed online. If you have missed filing a Form 990-N for the 2015 and/or 2016 tax years, you will need to use an IRS-authorized e-filer to file the missing tax returns. The IRS filing system does not accommodate previous tax year filings.
Stay tax compliant and maintain donor trust by e-filing Form 990-N online today using an IRS-authorized e-file provider.
Ariel Black is a content writer with ExpressTaxExempt, an authorized IRS e-file provider.