Nonprofit Compliance 101: Must-Dos, Pitfalls & Action Steps
As the leader of a growing nonprofit, ensuring compliance with key regulations is critical to maintaining your tax-exempt status and public trust. We know compliance can be tedious and time-consuming. In this post, we break down compliance and nonprofit accounting in plain terms, and tell you what you need to do and when you need to do it. Go deeper with our Nonprofit Director Starter Kit, which covers compliance, along with financial reporting basics and actionable checklists to scale your organization.
Annual Compliance and Nonprofit Accounting Basics
Stay on top of these annual compliance requirements for nonprofits:
Annual Audits: If your gross revenue exceeds certain state thresholds (e.g. $2M in California), an independent audit is required. Even if not mandatory, audits promote financial transparency and accountability to donors and stakeholders.
Form 990: All 501(c)(3)s must file a Form 990 annually with the IRS to maintain tax-exempt status. Be aware of gross receipts and asset thresholds that determine which version to file (990, 990-EZ, or 990-N). Failing to file can result in penalties or even loss of exempt status.
State Filings: Many states have their own annual reporting requirements for nonprofits, as well as registration obligations before soliciting donations. Always research and comply with your specific state's filing deadlines and charity regulations to remain in good standing.
đź’ˇ Tip: Search "nonprofit audit requirements [state]" and "nonprofit state filings [state]" to identify your key obligations.
Why Compliance Matters
Properly handling nonprofit accounting and compliance does more than just check legal boxes. It directly impacts your organization's ability to thrive and further its mission by:
Protecting your tax-exempt status
Maintaining public trust and credibility
Satisfying donor and grant requirements
Avoiding costly penalties and legal issues
Providing transparency into financial health
Key Nonprofit Compliance Tips:
Check state-specific audit thresholds (varies by state)
For donations over $250, send donor acknowledgment letters (Grab our template)
File 1099 forms for contractors paid over $600 annually
Deadline for 990 forms is 4.5 months after fiscal year-end
A 6-month extension for 990 filing can be requested from the IRS with Form 8868
Maintain accurate and detailed financial records
Implement a conflict of interest policy and have Board members sign annually
Register for charitable solicitation in states where you fundraise
Action Items for Nonprofit Leaders
Create a compliance calendar with key filing deadlines, including your Form 990, state reporting, and audits. See the sample calendar below.
Engage a nonprofit CPA for Form 990 preparation and audit needs
Have your Board annually review 990s and financial oversight
Develop written financial policies and procedures
Research and comply with state nonprofit regulations
With proper planning and expert support, you can stay in compliance and have fewer fires to put out. Looking for more? Check out our Nonprofit Director Starter Kit. It's full of compliance advice along with financial reporting basics and actionable steps to help scale your nonprofit.
Nonprofit Compliance Calendar: A Starting Point for 501(c)(3) Organizations
This sample compliance calendar, based on a calendar fiscal year, helps nonprofit organizations manage accounting and financial reporting deadlines, providing a foundation for effective nonprofit accounting. Customize this calendar with your accounting firm or financial advisors to ensure ongoing compliance. Reach out to Sutro Li if you have questions.
January
Prepare and send W-2 forms for employees by January 31
Prepare and send 1099 forms for contractors by January 31
File Form 941 (Employer's Quarterly Federal Tax Return) by January 31. Typically performed by your payroll provider
Conduct quarterly board meeting to ensure proper governance and comply with state laws and your organization’s bylaws
February
Review and update board member conflict of interest disclosures
March
Prepare for annual audit for Calendar fiscal years
April
File Form 990 or request a 6-month extension with Form 8868 by the 15th day of the 5th month after the end of your fiscal year (for calendar year filers, the deadline is May 15). Typically performed by your CPA
File Form 941 (Employer's Quarterly Federal Tax Return) by April 30. Typically performed by your payroll provider
Conduct quarterly board meeting to ensure proper governance and comply with state laws and your organization’s bylaws
May
Review and renew any necessary state registrations for charitable solicitation
June
Conduct mid-year review of budget and programs
July
File Form 941 (Employer's Quarterly Federal Tax Return) by July 31. Typically performed by your payroll provider
Conduct quarterly board meeting to ensure proper governance and comply with state laws and your organization’s bylaws
September
Create and approve the annual budget for the upcoming fiscal year, as it is a core function of board oversight and a component of the annual audit
October
File Form 941 (Employer's Quarterly Federal Tax Return) by October 31. Typically performed by your payroll provider
Conduct quarterly board meeting to ensure proper governance and comply with state laws and your organization’s bylaws
November
Review and update employee benefits for the upcoming year
December
Prepare for year-end fundraising and gift acknowledgments, and send by January 31 to ensure timely tax reporting for donors
Review and update the employee handbook and policies, including any changes related to labor laws
Review and update labor law posters to comply with federal, state, and local regulations
Policies to Review Every 3 to 5 Years:
Review and update key policies that are important for effective governance, compliance, and transparency. Many of these policies are inquired about on the IRS Form 990.
Conflict of Interest Policy
Whistleblower Protection Policy
Document Retention and Destruction Policy
Gift Acceptance Policy
Investment Policy
Lobbying and Political Activity Policy
Nepotism Policy
Privacy Policy
Risk Management Policy
Social Media Policy
Volunteer Management Policy
Fiscal Policies & Procedures Manual
Note that this is a general example and may not include all the specific requirements applicable to your nonprofit. Be sure to consult with your accountant, attorney, or state agencies for more specific guidance tailored to your organization.