Nonprofit Bookkeeping Guide: IRS Forms, Receipts, Checklist
Updated: Oct 9
Good books keep your nonprofit safe, keep donors happy, and keep your tax status. This guide gives you the real rules, the real dates, and the dollar amounts. Most bookkeeping blogs skip those parts.
Want help right now? We will do your bookkeeping 100% free for your first month. Email markus@revampfinances.com or call 317.983.3980.
Why Your Books Matter
Bad books cost real money. Here are the numbers.
You can lose your tax status. If you miss your yearly IRS form 3 years in a row, the IRS takes away your tax exempt status. This happens on its own. There is no appeal.
Theft is common. A big fraud study found that a typical group loses about 5% of its money each year to fraud. The middle loss per case was $145,000.
Weak rules make it worse. More than half of fraud cases were tied to weak money rules, or a boss getting around them. Small groups have weak rules most often.
Donors want proof. People give because they trust you. Clean books let you show where every dollar went.
Which IRS Form You File
Most nonprofits file one Form 990 each year. Which one depends on your size. Churches are the main group that does not have to file.
| Form 990N (the e Postcard) | Money coming in is normally $50,000 or less | | Form 990EZ | Money coming in is under $200,000 AND total assets are under $500,000 | | Form 990 | Money coming in is $200,000 or more, OR assets are $500,000 or more |
When is it due? The 15th day of the 5th month after your year ends. If your year ends December 31, it is due May 15.
Need more time? File Form 8868. It gives you 6 more months.
What if you are late? The IRS charges a penalty for each day late. Its training course lists $20 a day for most small groups, and $100 a day for groups over about $1 million. These amounts go up over time, so check the IRS site each year.
Restricted Money vs Free Money
Some gifts come with rules. Some do not. You must keep them apart in your books.
Restricted money can only be spent on what the donor said, or only during a certain time. Once you meet the rule, the money becomes free to use.
Unrestricted money has no rules. You can use it for rent, pay, or bills.
Here is a simple example. A donor gives you $10,000 for an after school program. Payroll is due and cash is low. That $10,000 still cannot pay rent. Spending it wrong can lead to a donor lawsuit or a call from your state attorney general.
How to track it, step by step:
Get the donor's rule in writing. Save the letter or grant contract.
Tag the gift in your books with a class or fund name the day it comes in.
Tag every expense paid with that money with the same name.
Once a month, check how much restricted money is left.
When the rule is met, move that money to free money with one entry, and save the report that backs it up.
A common mistake: groups forget to record the money owed on a grant that pays over several years.
Donor Receipts: The $250 Rule and the $75 Rule
Two IRS rules decide what your thank you letters must say.
The $250 rule. A donor who gives $250 or more in one gift needs a written receipt from you to take a tax deduction. The receipt must say if you gave them anything back for the gift.
The $75 rule. If a donor pays more than $75 and gets something back, like a dinner or a ticket, you must give them a written note. The note tells them the value of what they got.
Example: A donor pays $100 and gets a concert ticket worth $40. Only $60 is a gift. You must send the note because the payment was over $75.
The penalty: $10 per gift you miss, up to $5,000 per event or mailing.
Your bookkeeper should match every gift in your books to a receipt. That way nothing slips.
Gifts That Are Not Cash
Donated goods, space, and some services go in your books at fair market value. That means what it would cost to buy it.
How to record it: Put the value in its own income account for gifts that are not cash. Put the matching cost in the right expense account, like rent or legal fees.
What about volunteer time? Most volunteer hours do not go in your books. People setting up chairs or checking in guests do not count. Time only counts when it needs a special skill, and you would have paid for it anyway. Think of a lawyer, a CPA, or a designer doing their real job for free.
Keep proof. Save a note with the item, the date, who gave it, and how you picked the value.
When You Need an Audit
The IRS does not make most nonprofits get an audit. But other rules can.
Federal grants. If you spend $1,000,000 or more in federal grant money in one year, you need a Single Audit. This used to be $750,000. The audit is due within 9 months of your year end.
Your state. Each state has its own rule. For example, California requires an audit at $2 million in revenue. Illinois requires one at $500,000 in gifts.
Your funders and lenders. Many grants and loans ask for an audit even when the law does not.
How clean books save you money on an audit: Auditors send a list of papers they need. If your books are already clean, they spend less time, and you pay less. Keep that list up to date all year, not just at year end.
Simple Rules That Stop Theft
You do not need a big team to protect your money. The number one rule is to split the jobs. The person who approves a bill should not record it. The person who records it should not reconcile the bank.
Here are 6 easy rules:
One person counts cash gifts. A different person takes them to the bank.
Two people approve large checks or payments.
Match your books to your bank every month.
A board member looks at the bank statement every month.
Check who can log in to your bank, books, and payroll at least once a year.
Give staff a way to report problems. Tips caught 43% of fraud cases in the big fraud study. That is more than 3 times any other way.
An outside bookkeeper helps here. We become the second set of eyes that small teams do not have.
Your Monthly Bookkeeping Checklist
Do these 10 things every month. Your year end and your Form 990 will be much easier.
Record every gift, grant, and bill
Tag each gift as restricted or free money
Tag each expense to a program, admin, or fundraising
Match your books to every bank and credit card statement
Send receipts for every gift of $250 or more
Record gifts that are not cash at fair value
Check how much restricted money is left on each grant
Pay bills on time and file W9s for new vendors
Run your Balance Sheet, Income Statement, and budget vs actual report
Send reports to your director and board
Signs You Need Help
If 2 or more of these sound like you, it is time to get help.
Your books are more than 1 month behind
You track grants in a spreadsheet outside your books
One person handles all the money
Your board does not get reports each month
You are not sure which Form 990 to file
An audit is coming and you feel lost
Get Your First Month of Bookkeeping Free
At Revamp Your Finances, we work with nonprofits that bring in $500,000 to $5 million a year. We have done this for 13 years. We are QuickBooks ProAdvisor certified.
Here is what we do for you:
Keep your books up to date every month
Track restricted money grant by grant
Match every bank and credit card account
Send clean monthly reports to your director and board
Get your books ready for your Form 990 and your audit
Your first month is 100% free. No catch. We do the work, and you see the results.
Email: markus@revampfinances.com
Call: 317.983.3980
Common Questions
Can we skip filing if we are small? No. Even small groups file the Form 990N online. There is no paper form.
We lost our tax status. Can we get it back? Yes, but you must apply again and pay a fee. Some groups can get it back to the old date if they apply within 15 months.
Do we have to send a receipt for a $50 gift? The law does not require one unless the donor got something back. But a thank you note is still smart.
Is a bookkeeper the same as a CPA? No. A bookkeeper keeps your books clean every month. A CPA often files your taxes or does your audit. Clean books make the CPA's job faster and cheaper.
Sources
Want Help With Your Books?
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