Top 05 Mistakes to Avoid on Your Nonprofit Tax Return 2025

Filing nonprofit tax returns is a task all nonprofits must handle with care. The IRS expects you to file clear, correct, and full reports. Any mistake can lead to fines or the loss of tax-exempt status. In 2025, it is more vital than ever to avoid key errors.

This guide lists the top 5 mistakes that nonprofits should avoid when filing their tax return. We also provide simple steps to stay on the right path.

Top 5 mistakes to avoid while filing tax returns for 2025

1. Not Reporting Unrelated Business Income (UBI)

Your nonprofit may earn funds from sources not tied to its main goal. These are known as unrelated business income (UBI).

What Counts as UBI?

Sales not linked to your core mission
Ad sales on websites
Renting space or gear
Paid events not tied to services you provide

Why It Matters:

You must report UBI on your non-profit tax returns.
You may owe tax on it.
The IRS may penalize your group for hiding or not listing this income.

How to Avoid This Mistake:

Track all sources of income.
Know the IRS rules on what counts as UBI.
Use Form 990-T if UBI is more than $1,000.

Clear records help you stay safe and avoid IRS issues.

2. Misclassifying Workers

Many nonprofits mix up how they list their workers. This is more than just a paperwork mistake.

What This Means:

You may label staff as contractors when they are really employees.
You may skip tax payments you owe.
This can lead to IRS audits or fines.

Why It Matters:

Staff rights and pay are based on how they are listed.
Missteps can cost your nonprofit money and trust.

How to Avoid This Mistake:

Use IRS tests to check how to classify staff.
Employees: you set the hours, tools, and methods.
Contractors: they work on their own and take care of taxes.
Keep clear terms in all contracts.

Correct worker status helps you stay on track with non-profit tax returns.

3. Filing the Wrong IRS Form

Many nonprofits use the wrong version of Form 990 or miss the deadline.

Form Options:

Form 990-N: For small groups with $50,000 or less in income.
Form 990-EZ: For groups under $200,000 in income and under $500,000 in assets.
Form 990: For large groups with more than $200,000 in income or more than $500,000 in assets.

Why It Matters:

A late or wrong form can cause delays, fines, or status loss.
Miss three years in a row, and your tax-exempt status ends.

How to Avoid This Mistake:

Know your group’s income and size.
Mark your filing date—15th day of the 5th month after your fiscal year ends.
File early and use tax tools or help if needed.

This is one of the most common errors on non-profit tax returns.

Top 5 mistakes to avoid while filing tax returns for 2025

4. Wrong or Incomplete Financial Information

Your reports must show the full and correct use of your funds. The IRS uses your form to check how you spend money.

Common Errors:

Donated goods not listed
Expenses put in the wrong group
Totals that don’t match your books

Why It Matters:

These errors hurt trust from donors and boards.
It can lead to fines or extra review from the IRS.

How to Avoid This Mistake:

Use software for nonprofit accounting.
Track each type of income and expense.
Don’t guess, use exact amounts.
Match your records with the numbers in your form.

Strong records help your non-profit tax returns stay correct and clear.

5. Leaving Out Needed Schedules

Form 990 has many schedules. Each one shares more detail on parts of your work.

Common Schedules:

Schedule A: Public charity test
Schedule B: Donor info
Schedule G: Fundraising details
Schedule O: Notes or extra info

Why It Matters:

Missing a schedule can make your return “incomplete.”
The IRS may reject it or ask for more info.
It could cause a delay or fine.

How to Avoid This Mistake:

Read the form’s guide to see which ones you need.
Double-check each part before you send it.
If in doubt, get expert help to review your return.

These details complete your non-profit tax returns and help the IRS see your full work.

Additional Best Practices for 2025

Keep records of all gifts and donations.
List all board members and their roles.
Note any pay or benefits given to leaders.
Keep board meeting notes.
Save past returns for at least 7 years.
Keep your contact info up to date with the IRS.

These steps support strong, yearly non-profit tax returns.

Filing non-profit tax returns is not just a yearly task. It plays a key part in keeping your group’s tax-exempt status, clear records, and public trust. Errors like missed unrelated income, wrong worker types, using the wrong tax form, or missing needed pages can cause big issues. These may lead to fines, audits, or the loss of your nonprofit status.

To lower these risks, you should keep strong records, know IRS rules, and follow each step when filing. Use good tools and seek expert help if needed. Meru Accounting helps nonprofits with tax returns, books, and rules in a clear and stress-free way. Their team can guide you so you stay focused on your mission, not on tax stress.

In 2025, make sure your nonprofit avoids common filing mistakes. Stay prepared, file on time, and check that each part of your return is full and correct. These steps will protect your status and help your nonprofit grow on a strong and stable base.

FAQs

Do all nonprofits need to file a tax return?
Yes, even small groups must file a version of Form 990 each year.
What is the deadline for filing in 2025?
It’s the 15th day of the 5th month after the end of your fiscal year.
What happens if we don’t file for three years?
You lose your tax-exempt status and must reapply with the IRS.
Can we fix a mistake after we file?
Yes, you can file an amended return with the correct information.
What if we made no money last year?
You still must file, often with the simple 990-N form.
Is it okay to guess on numbers if we’re close?
No, always use real figures from your records.
Should we get help from an expert?
Yes, if you’re unsure, a tax pro can help avoid mistakes.