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Tuesday March 31, 2020 comments Tags: 990, accounting, nonprofit

Any accounting, business or tax advice in this podcast is not intended as a thorough in depth analysis of your specific issues. It's not a substitute for a formal opinion. It is not good enough to avoid tax related penalties. Hey, it is Chyla Graham. It is time for another episode of the nonprofit nuggets podcast. This season is all about the IRS 990 and informational return for nonprofits. I want you to have a better understanding of the return and how it fits into the foundational pieces for healthy nonprofits.

Those pieces being your mission, your priorities, your tools and storytelling. So for that reason, this season is going to be brought to you by my DIY 990 clinic, which will be on April 21st, 2020 at 9am mountain and it's for those of you who plan on filing your own 990, but want access to a CPA while working on the form. This will give you 90 minutes to set aside to work on the forms so that you continue your work on the community? So check out the link in the transcripts to learn more about it. This episode is all about your priorities, so we're going to talk about your priorities and how the IRS 990 highlights them.

For me, when I'm looking at a nonprofit and I'm thinking about what are their priorities, I'm thinking about how they're spending their money and that is what people are always looking at with like the 990s. When people want to, you know, shade or be like rude, or be like, I don't know about that old place. What they do is they go to the 990 if they don't trust the people running the organization, they go to the IRS 990 and they say, how much are these people making? And they think about, Oh, your executive director makes that much, Ooh, you're paying your board members this much. All of that information is in the 990. So this is a way for people to think about what is it that you're prioritizing and don't just think about, Ooh, they're just gonna be looking at my salary.

Again, the IRS wants you to highlight what's happening at the organization. So there's also a part on the form where you can talk about your activities and how much you're spending in each of the activities. So you're not just talking about ooh these people made this much money, but you're going to be able to say, listen here, you know the work we said we do, that food bank that we run this is how much money we put into it. So when you are unclear about how you're spending money, when your finances on the back end, or your financial statements are just not in order, it makes it a lot harder to reflect those priorities. It's a lot more when we think this is what we need to adjust. So for me it makes the case for putting it in the system the right way, the right time, the first time, and among the things that you, that gets pointed out, is going to be not just how much people are making, but how many hours are they putting in.

I think this from an internal perspective helps your board think about, wow, our executive director is making $40,000 and they put in on average 60 hours a week. For organizations who think that livable wages are really important. If you say that you think livable wages are really important, if you say we prioritize our employees and not having to work two and three jobs to make this possible, you should be looking at how much are we paying people, how many hours are they working? What does that work out to be? Are we truly paying people in compliance with minimum wage laws? Another way that this highlights how people are spending money is that or what your priorities are, is that it talks about independent contractors, independent contractors is a question that comes up a lot.

Who should we treat as an independent contractor? Well, the IRS is going to say it even if you don't say it, this person is an employee, if you're paying them, well, their threshold is $100,000, which is quite high, depending on the type of work that the vendor is doing. It's possible that you might find that there are several organizations that are paying hundreds of thousands to independent contractors. And for me, that is the question of what is it that these independent contractor is doing that you could not find an employee to do. It helps to think about how are we prioritizing this work? Is the work that this contractor is doing something we could not in fact bring in house? Could we train people to do this work? What benefits could we reap by doing this type of work? Another thing that helps highlight priorities.

We talked about the payments that we made, we talked about how many hours are they putting in. The hours the board of directors is putting in is valuable information for your organization. It gives you a gut check of are those board members fulfilling their duties? Not to say that, Oh, because they put in 75 hours a week they are. But if you're finding that there's some board members who are not, if you expect, if when you were bringing the board members on you said, Oh, we find our board members to put in about two hours a week, you know, between the committees they serve on or the board meetings or the calls that we expect them to do. And you have board members self assessing that, Oh, I put in like an hour a month. You know, at the actual board meeting, you may need to evaluate are these board members truly engaged?

What is it that, what is it that this is saying? If you have board members that you're like, wow, they put in no time, no time at all. Okay, is it time to rethink how you've made up your board? This is crucial to like accomplishing your mission and saying, if we prioritize our community and putting them first, we need to make sure that people who are working be they volunteers or not or paid employees, that time is being well spent. I mentioned volunteers. That is another thing about the IRS. Again, I like to highlight, hey, what are the things that you guys are doing? And so by talking about the volunteers you get to now show we have a lot of community support. We have 20 volunteers, we have 50, we have a hundred volunteers.

That information goes into that piece about what is our reach? What is our impact going to be? How are we engaging with the community? If you're finding that you have staff members who are working excessive number of hours and you have a limited number of volunteers, what does that say about your consideration about their life and what does that say about your ability to communicate your need for volunteers? What does that say about your systems in place to train volunteers so that they will stay and you can lighten the burden on some other staff members at least until you can hire more staff. So those are the priorities that I think I know that you guys should definitely be paying attention to as you look at your 990 as you are completing the form, how much are you paying people and not just from we can't afford to pay people perspective cause I don't believe that.

I believe you can afford to pay people if you prioritize correctly. It's definitely doable. But from the perspective of if we say that we are interested in having fair and livable wages, if we say that the costs of living in the area that we're in is really high, are you paying people in accordance to that? Are you paying people more than minimum wage? Are you engaging volunteers? Well, volunteers, including your board of directors. And the last area that I think the IRS 990 helps highlight is the unrelated business income tax. So I mentioned it before and this is the money that you guys raise, not raise, cause you're not asking people, you're generating revenue. You're saying we're selling these products. They have nothing to do with what we do as a mission, but it's a good way to bring in money. If you find that you have a lot of unrelated business income, I would venture, I would ask you to consider what is it about these other income sources, why did we feel the need to go into it?

I'd also consider how much of your resources are you putting in there? So not just, oh, we're making a lot of money, but how much is it costing you in personnel costs and is it worth it? Is it truly offsetting? Is it truly supporting the work that you do, as in making it possible for you to fund those salaries? Fund the program expenses. So those are the priorities that I think that you should consider. The priorities that the IRS 990 highlights are how are payments being made? How are program funds being spent, how much time is being put in by staff, high level staff and how many volunteers you have. If you have any other questions on what are some of the priorities that come up when you're completing your 990 reach out and let me know. 

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