Annual reports are essential to the success of any nonprofit. And, they’re becoming increasingly necessary.
As transparency and trust become more important, there may be an increased need and demand for annual reports to ensure that nonprofits are doing their jobs properly. That’s why it’s crucial that organizations understand the answers to some of the biggest questions surrounding their annual reports.
In this blog, we’ll the top questions to consider when preparing a nonprofit annual report or Form 990 in 2023, including:
- Is a nonprofit annual report required?
- What is the legal mandate for nonprofits to file an annual report?
- When is Form 990 due?
- When is an annual report due?
- What happens if a nonprofit does not file a Form 990?
- What happens if a nonprofit does not file an annual report?
- When should I start working on an annual report?
- When should I start working on Form 990?
- How do I create a nonprofit annual report?
- Where do I publish an annual report?
Is a Nonprofit Annual Report Required?
No. Nonprofit annual reports are not required, but Form 990s are. Let’s take a look at the differences.
Nonprofit annual reports
- Purpose: connect with stakeholders and communicate the mission and goals of the organization.
- Legal mandate: none
- Contents: Accomplishments, highlights, honor rolls, etc.
- Benefits: donor retention and engagement through transparency
- Audience: Donors, volunteers, partners, etc.
- Example: Climate Generation’s 2020 – 2021 annual report
Form 990
- Purpose: all tax-exempt organizations 501(c)(3) are required to complete a an annual Form 990s for the IRS
- Legal mandate: required
- Contents: annual revenue, expenses, employee salaries, etc.
- Benefits: Maintain tax-exempt status
- Due date: Form 990s are due on the 15th day of the fifth month after your organization’s fiscal year ends
Now that we’ve covered the basics, let’s dive into some of the finer details.
What is the legal mandate for nonprofits to file an annual report (Form 990)?
Nonprofits in the United States are legally required to file a Form 990 (also known as the Return of Organization Exempt from Income Tax) with the IRS. This annual report provides the public and potential donors with information about the nonprofit’s mission, how it spends its money, and its financial performance over the past year.
Many states have specific laws concerning nonprofit reporting requirements, but these vary from state to state. In general, nonprofits are required to report their financial activities, operations, governance activities, and accomplishments.
When is Form 990 due?
In most cases, a nonprofit’s Form 990 is due by the end of the organization’s fiscal year. Most nonprofit organizations are required to file an annual report within the period set by their state of registration.
Generally speaking, this period can range from one to four months after the end of their fiscal year. However, it is important to check with the appropriate authority (i.e. Secretary of State or Attorney General’s Office) in the organization’s state of registration in order to ensure that they are filing the report in a timely manner.
When is a nonprofit annual report due?
An optional annual report—used as a marketing tool to connect with stakeholders—doesn’t have a firm deadline. However, with all of their financial information on hand, most nonprofits publish their annual reports around the same time as they file their Form 990.
Of course, the publish date of any optional annual report varies by organization. Some nonprofits coordinate the publication of their annual report with their content calendars or other marketing efforts. Or, they publish their annual reports strategically during optimal giving months like the end of the year or Giving Tuesday.
What happens if a nonprofit does not file a Form 990?
If a nonprofit does not file an annual report, it may be shut down or have its nonprofit status revoked. Additionally, the organization may face fines or other penalties from the state. The nonprofit may also be subject to audits and investigations from the IRS and face more serious sanctions from the government.
What happens if a nonprofit does publish an annual report?
There are no repercussions if a nonprofit chooses not to create and publish an annual report. However, annual reports are an industry standard. They provide nonprofits with an opportunity to connect with stakeholders, spread awareness about their mission, and showcase their commitment to transparency.
Plus, digital annual reports are the ultimate fundraising tool. With custom donate buttons, clickable content, and more, great nonprofit annual reports can turn readers into donors.
When should you start working on an annual report?
Because there is no set deadline for an annual report, nonprofits have the ability to begin preparing for it at any time. However, most nonprofits start early in order to find the right photos, collect the right data, and enlist the right stakeholders for help.
When should you start working on Form 990?
Nonprofits should start working on their annual report as soon as the fiscal year begins in order to ensure the report is accurate and up-to-date. The report should be complete by the end of the fiscal year, but it is okay to have a preliminary version of the report in order to meet legal requirements.
How do I create a nonprofit annual report?
Unlike Form 990s, which don’t require any kind of design strategy, annual reports should be professional, creative, and engaging. Typically, nonprofits create their nonprofits using one of two methods: either by hiring a graphic designer or other professional or by creating it themselves.
Using a graphic designer vs software for creating an annual report
Hiring a graphic designer can be a great way to create a unique report, but it’s not always possible for many nonprofits with limited budgets. Software, however, is a great alternative for nonprofits who want to save money and resources. Software with drag-and drop editing, free annual report templates, and more, is a great way to easily create beautiful annual reports with minimal effort.
Using graphic designer
Pros:
- Professional input
- Outsourcing
Cons:
- Can be expensive
- Might not meet deadlines
- Has to learn about your org (mission, audience, goals, etc)
Using a digital annual report builder
Pros:
- Can create and save annual report templates for each year
- Utilize pre-made nonprofit annual report templates
- Fully customizable with your organization’s brand and style guide
- Drag and drop editors make adding photos, videos, and more a breeze
- collaborative—team can all partake
- Cost-effective
A digital annual report builder has free templates, and drag-and-drop editors, and even can provide one-on-one customer service. Plus, nonprofits can design impact reports, board reports, and other essential documents through this same software. So while hiring a graphic designer is a great outsourcing option, an annual report builder provides your nonprofit with a long-term solution.
Different Formats of Nonprofit Annual Reports
Annual reports come in a variety of shapes and sizes, from traditional paper reports to interactive digital reports. Because there is no requirement, nonprofits can choose the format that best fits their needs.
- Traditional paper reports: Hard copies of financial and other information.
- Digital reports: Easy-to-digest story-based reports with immersive visuals and interactive content.
While some nonprofits prefer to stick with traditional paper reports, digital reporting has more benefits.
Digital reports can:
- Create an emotional connection with readers through photos and videos
- Encourage donations through custom buttons
- Can be saved as templates for the future
- Allow for easy donations, right from the report
The best format for an annual report depends on the audience, goals, and resources available to the nonprofit. However, a digital report is often a much more strategic choice for growing organizations.
While most nonprofits title their report “2022 annual report,” others like to take a more creative approach. Some examples of annual reports include:
- Impact report — focused on showcasing the impact of any given year
- Sustainability report — focused on showing sustainability efforts
- Gratitude report — focused on honor rolls, testimonials, and more
Where do I publish my nonprofit annual report?
Donors are online. That means, most nonprofits publish their annual reports online. Here are just a few places nonprofits can publish and disseminate their annual report:
- E-newsletter
- Website with custom URL
- Social media
- Partner websites
By using an annual report builder, and publishing it on social media, via their website, or through an e-newsletter, organizations can connect directly with stakeholders and provide. an interactive experience.
Conclusion
Nonprofits are not legally required to complete an annual report, but an annual report is a powerful fundraising and awareness tool. Nonprofits have the option to create and publish their report in any format they wish, from traditional paper reports to interactive digital reports—however, a digital report is one of the best ways to connect with stakeholders.
Ready to get started on your digital annual report? Start with Yearly’s 14-day free trial!
Josh Kligman is the CEO of Yearly, a platform for nonprofits to create their own digital reports. Josh has been working with nonprofits on annual reports, brand and partnerships since 2011. He is helping nonprofits create more engaging, digital annual and impact reports with Yearly. Throughout his career, Josh has helped launch and run nonprofit brand campaigns and media partnerships nationally and locally, using television, radio and web, to amplify the reach of campaigns and provide demonstrated value for non-profit stakeholders. Josh received his B.A. from American University in Communications and his M.B.A. from American University in Marketing Management and Entrepreneurship.