How to calculate and project your budget on the IRS Form 1023
Form 1023 budget and financial section is of great importance as part VI of the form 1023 accounts for 90% of the information that the IRS needs to classify your organization as a public charity or a Private Foundation. If you are an existing nonprofit organization, you have all the realistic financial data from past years and budget projection shouldn’t be a problem as you should be able to answer the following questions with ease.
However if you are a new organization, and just applying for tax exemption status, part VI (6) of the form 1023 will look outrageously confusing, because you have no financial data as of yet, but somehow you are required to provide them. Don’t get too worked up, its’ for your own good.
Part VI (6) of the IRS form 1023 has to be done with utmost professionalism. No IRS examiner will take your organization seriously if you hand draw your tables or list your data in an incoherent way. Remember that the form 1023 budget is a public document so you have to do your best.
You need to project your financial data and organization’s expenses from A to Z, and put them down in tables. Do not use the actual Form 1023 for the financial data explanations on line 25 (itemized financial data); this section should go in your Form 1023 attachment called the supplemental responses.
Even though you have no financial records, you should provide your past (even if it consists of buying lunch for the board), your present, and at least two or three complete years into future. This is where you and your treasurer has to get creative on budget projection and make up numbers. I say make up numbers because there is no other way of putting it. For lack of better word, you have to speculate on what you will earn, what your expenses will be, and what will remain at the end of each year.
Form 1023 Budget Projection Calculator
After reviewing countless dreadful applications, I decided to put an automatic form 1023 budget projection calculator together to make your financial projection a 5 minutes deal rather than 2 weeks long headache. Download the zip folder by pressing on the button to the left to get this calculator. It comes with comprehensive explanation of the statements and it will hopefully answer your endless questions. The calculator itself is in Microsoft Excel Format and it’s a printable document.
Read the budget and financial instructions 100 times if you have to and make your projections wisely. This calculator is not available from anywhere else but here, and I have spent considerable amount of time perfecting it, so don’t forget to donate a few dollars to keep this site alive.
Why does the IRS ask for a projected budget on the form 1023?
The IRS wants to know the percentages of your proposed revenue and expenses in your form 1023 budget to determine your foundation classification, whether you have unrelated business income, or if you benefit insiders in your organization. The amounts and numbers are somewhat irrelevant contrary to what most people think.
You could present a $10,000 revenue projection and get denied, while a 3 million dollar form 1023 budget gets approved without a hiccup. It comes down to how to you present your numbers and what these numbers reveal about your activities.
How to fill out the Part VI of the form 1023 (Financial Data)
A few form 1023 financial budgeting tips first:
Choose your projections wisely. Whatever your revenue total is, the actual program funds should stay above 85%. If it doesn’t, cut your expenses. A decent nonprofit organization should have at least 85% or higher allocation of funds for its actual programs. If you are projecting more than 15% internal overhead, there is something really wrong with your organization.
Don’t project too high or too low. Don’t say that your revenue is going to be $180,000 a year, if you know it’s a long shot in hell. It’s better to project small and realistic figures; the IRS won’t knock on your door if you make more money than what you truthfully anticipated.
Make sure your numbers match. Whatever amount your list on the table in the actual form 1023 financial data section should exactly match the numbers in your attachment sheet. If the numbers don’t match, you’ll be questioned.
The following is an example of how your form 1023 financial data should be presented. Note that every table is clearly marked, and every section relates to questions asked on the form. Use the table on the form 1023 but in the itemized section say “please see attachment” and include a complete itemized budget or you’ll be questioned to no end. More hands-on explanation with form 1023 budget examples follows:
Form 1023 Financial Data Part VI
A) Statement of Revenues and Expenses and Projected Data for 20xx, 20xx, and 20xx Tax Years
Gross receipts from admissions, merchandise sold or services performed… in any activity that is related to your exempt purposes (attach itemized list.)
The following table consists of the projected gross income from monetary donations, grants and gifts to the organization. This includes the fundraising merchandise sales as well as services rendered. The table is sorted alphabetically.
Form 1023, Part VI – Any expense not otherwise classified (attach itemized list.)
The following table consists of the organization’s expenses, expenditures and spending for the shown years. Please refer to the second worksheet for further itemization.
Further Breakdown of Expenses
Please note that the inflation rate for the years of 20xx and 20xx has been calculated based on a 5% increase annually.
B) Balance Sheet (for your most recently completed tax year)
Please note: The table below is an itemized list of the expenses and income of XYZ Humanitarian Corp. since its incorporation on XX,XX 20XX. The table is sorted alphabetically.
The last part is you asset sheet. You need to list anything and everything that your organization owns from chairs to automobiles.
(Next Step) IRS Form 1023 Part VII (7) Foundation Classification
(Previous Step) Instructions For Form 1023 Part V, Compensation
NOTE: If you’d like to receive the following organizing documents:- Nonprofit Articles of Incorporation,
- Nonprofit Bylaws,
- Nonprofit Conflict of Interest Policy,
- Conflict of Interest Policy Acknowledgment,
- Form 1023 Attachment with all the answers,
- Form 1023 Expedite Letter template,
- and Donor Contribution Form
in Microsoft Word Document format, please consider making a donation and you’ll get to download them immediately. Not only they're worth well over $1000 in value, they will save you weeks of copy pasting and formatting as they are ready to go templates which only need changing names and addresses.
