The Nonprofit Compliance Checklist: A Guide to Stay on the Right Track

Receiving your 501(c)(3) status is just the beginning of your nonprofit journey – you must then continuously comply with all federal, state, and local nonprofit regulations. This is not only essential for preserving your tax-exempt status but also for upholding public trust and maintaining good standing in the community.

To maintain compliance, your organization must meet several requirements, from filing required documents and financial reports to following proper operational policies and fundraising rules.

Understanding and managing these obligations alongside your mission-related activities can be challenging. That's why we've created this simple guide with a practical checklist to help you maintain nonprofit compliance and avoid potential legal issues.

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Table of contents

Federal and state filing requirements

Financial reporting and documentation

Board governance and policy management

Fundraising compliance

Employee management and payroll

Download our checklist to keep your nonprofit compliant

Final words on nonprofit compliance requirements

FAQs on nonprofit compliance

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Federal and state filing requirements

1. File annual IRS returns 

All 501(c)(3) organizations must file Form 990 annually with the Internal Revenue Service. This form collects information about your organization's expenses, income, program accomplishments, and the compensation of key personnel, including officers, directors, and highly paid employees earning more than $100,000 annually.

IRS Form 990 is a public document that informs grant-makers and donors of funding decisions. When completing the narrative sections, ensure they effectively communicate your nonprofit's mission, impact, and activities.

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2. Submit corporate filings  

Your nonprofit must submit regular corporate reports to maintain state compliance - typically annually or bi-annually depending on your location. These reports, which may have different names across different states, update your organization's key information like address, board members, and registered agent. 

Pay close attention to filing deadlines and fees, as missing them can jeopardize your nonprofit's good standing and ability to operate legally.

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3. Update charitable solicitation permits

Most states require charitable nonprofits to register before soliciting donations and file annual renewal forms detailing their fundraising activities. If your organization raises funds across multiple states, you need to register and renew yearly in each state.

Each state will have specific registration requirements and renewal deadlines - California requires renewals by the 15th day of the fifth month after the fiscal year-end. In contrast, Florida requires them by the registration anniversary date.

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Financial reporting and documentation

4. Maintain accurate financial records 

Keep detailed records of all financial transactions, including receipts, invoices, and payroll. These records support nonprofit transparency, financial health, and compliance. They are essential for nonprofit tax filings, grant applications, and corporate sponsorships as they prove your financial standing and management practices.

You can easily manage and organize these records with the right accounting software. A reliable solution helps track income, expenses and restricted gifts while supporting bank reconciliation, monthly reporting, and timely tax filings.

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5. Conduct regular audits 

By committing to regular audits, you can demonstrate accountability, build trust with stakeholders, and prevent financial mismanagement.

You can conduct internal audits with staff or board members to identify gaps in financial policies and fundraising practices. 

Alternatively, consider annual external audits by certified public accountants (CPAs).  These unbiased audits review your organization’s financial health, ensuring compliance with nonprofit accounting standards, grant requirements, and federal tax-exempt status. 

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6. Submit state-specific annual reports

While most states accept Form 990, which you file annually with the federal government, some states have additional filing requirements. State-specific annual financial reports are submitted to the Secretary of State or other designated regulatory bodies. 

They confirm that the nonprofit is active and provide updated details about its operations, leadership, and financial status. Visit your state’s Secretary of State website to review annual filing requirements and deadlines, as these vary by location.

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Board governance and policy management

7. Host regular board meetings 

Conduct proper board meetings monthly, bi-annually, or as specified in your nonprofit's bylaws and state regulations. Record meeting minutes, as some states legally require nonprofits to document and store board meeting records. 

While a board meeting has several key components, you don’t need to transcribe the meeting word-for-word. Consider including the following details in your minutes records:

• Meeting basics (date, time, location)
• Attendance (present and absent board members)
• Call to order and time
• Approval of previous meeting's minutes
• Reports (financial, committee, executive director)
• Motions made, who made them, and voting results
• Major discussions and decisions
• Action items and who is responsible
• The time the meeting ends and the signature of the secretary or minute-taker

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8. Review and update bylaws 

Reviewing and updating your nonprofit's bylaws is essential to ensure they remain aligned with the organization’s current operations and comply with legal requirements. These bylaws serve as your governing framework, defining rules for decision-making, board structure, and organizational processes. 

While reviewing, check if existing bylaws reflect your nonprofit's current size, mission, and governance practices. Take note of any changes in state and federal nonprofit law, like board composition and conflict-of-interest requirements, and update accordingly. 

You must review and update your bylaws every two to three years - avoid going any longer than five years.

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9. Develop and maintain policies addressing conflicts of interest

Review your conflict-of-interest policy yearly with board members to ensure it remains effective and aligned with the organization's operations and legal requirements.

A well-defined conflict-of-interest policy is essential for nonprofit governance. This document guides board members, officers, and employees in identifying, disclosing, and managing potential conflicts that could impact decision-making or the organization’s reputation.

Adopting and enforcing a conflict-of-interest policy can safeguard your decision-making processes and demonstrate accountability to stakeholders.

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Fundraising compliance

10. Provide donor acknowledgments

It is important to acknowledge all your donors, irrespective of their gift size, but there are legal requirements for certain donations. The IRS mandates nonprofits to provide formal acknowledgments for donations of $250 or more.

These acknowledgments should include a donation receipt with the nonprofit's name, EIN, donation date, amount, and a note on whether goods/services were exchanged. 

With Zeffy’s 100% free donor management software, you can generate and send tax receipts to all your donors when you receive a donation.

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11. Track your fundraising income 

Maintain detailed records of all donations and fundraising activities to comply with IRS Form 990 requirements. Tracking your funds also provides valuable insights into your donation patterns. 

You can identify which fundraising methods bring in the most support and which ones need adjustments, helping you make informed decisions about future fundraising strategies.

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12. Ensure proper use of funds 

Managing donor funds requires careful stewardship to maintain trust and legal compliance. Follow donor restrictions strictly, using designated funds only for their specified purposes. 

For unrestricted donations, ensure spending aligns with your nonprofit's mission and approved budget. 

Document all fund allocations clearly, especially for grants with specific requirements. This transparency helps prevent misuse allegations while demonstrating responsible financial management to stakeholders.

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Employee management and payroll

13. Classify workers correctly

Worker classification impacts everything from tax obligations to legal liability. When determining whether someone is an employee or contractor, examine factors like work control, payment structure, and the duration of the relationship. 

Incorrect classification can lead to severe penalties from the IRS and the Department of Labor while exposing your nonprofit to potential lawsuits. Regularly review your classifications, particularly when roles or responsibilities change.

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14. Adhere to employment laws

Nonprofit organizations must follow federal and state employment laws to ensure fair employee treatment and maintain legal compliance. These laws include several key regulations:

• Fair Labor Standards Act (FLSA): The FLSA sets standards for minimum wage, overtime pay, recordkeeping, and child labor. It typically applies to nonprofits with commercial activities generating $500,000+ in annual revenue.
• Family and Medical Leave Act (FMLA): The FMLA requires organizations with 50+ employees to provide up to 12 weeks of unpaid, job-protected leave for family and medical reasons.
• Americans with Disabilities Act (ADA): Organizations with 15+ employees must follow ADA regulations to prevent discrimination and ensure reasonable accommodations.
• Occupational Safety and Health Act (OSHA): OSHA requires employers to maintain workplaces that are free from recognized safety hazards to protect workforce health and wellbeing.

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15. Meet payroll tax requirements

As a nonprofit with employees, you must comply with payroll tax requirements by withholding employee wages and making employer contributions. These payments must be remitted to federal, state, and sometimes local tax authorities.

• Employers must calculate and withhold federal income tax from employee wages based on Form W-4 provided by the employee.
• Employers must withhold state income taxes from employees where applicable. Even if exempt from FUTA (Federal Unemployment Tax Act), nonprofits are often subject to SUTA (State Unemployment Tax Act). Some states allow 501(c)(3) organizations to opt for reimbursement rather than regular contributions.
• Employers must contribute employees' share for social security and medicare, and state unemployment insurance.

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Download our checklist to keep your nonprofit compliant

Running a nonprofit is challenging enough without worrying about compliance deadlines. Download this straightforward checklist to help you and your board track the essentials - from annual filings to governance requirements.

Strategic Nonprofit Compliance Checklist [Coming Soon]

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Final words on nonprofit compliance requirements

Compliance isn't just about checking boxes - it's your bridge to sustainable growth. By creating a well-structured compliance program, you can build credibility with stakeholders, attract major donors, and strengthen fundraising opportunities. 

Start by establishing clear policies, assigning responsibility for key compliance areas, and creating a calendar of tax filing deadlines. Focus on regular staff training to ensure everyone understands their legal duties while conducting quarterly audits to catch potential issues early.  

With this systematic approach, you can easily prevent noncompliance and focus on what truly matters: your mission.

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FAQs on nonprofit compliance