Top 9 Compliance Tips for Nonprofits

Running a nonprofit takes heart, dedication, and, yes - attention to compliance. Let's walk through the key things you need to know to keep your organization running smoothly and focused on what matters most: your mission. 

1. Federal Tax Filing Requirements  

The IRS Form 990 is one of your most important annual tasks, but not all nonprofits file the same version of the form. Depending on your organization's financial activity, you'll file one of three versions: Form 990, Form 990-EZ, or Form 990-N (also called the e-postcard). 

• Form 990-N: Designed for smaller organizations, this e-postcard is required for nonprofits with gross receipts of $50,000 or less. It's simple to file online but essential for maintaining your tax-exempt status.
• Form 990-EZ: This short form applies to nonprofits with gross receipts of less than $200,000 and total assets under $500,000. While less complex than the full Form 990, it still requires financial details like revenues, expenses, and program accomplishments.
• Form 990: Larger organizations with gross receipts of $200,000 or more or total assets of $500,000 or more must file the full version of Form 990. This form is more comprehensive and requires detailed reporting on financials, governance, policies, and mission-related activities. 

Regardless of which form you're required to file, it's critical to submit it within 4.5 months after the end of your fiscal year. Missing this deadline three years in a row results in automatic revocation of your tax-exempt status, a costly mistake for any nonprofit. 

2. State Filing Requirements  

Each state has its own rules to follow. For instance, if you're in Nebraska and file a federal Form 990-T, you'll also need to file at the state level. Planning to fundraise in other states? Check their rules first to avoid any headaches down the road.  

It's important to note that Nebraska also requires filing forms 451 and 451A for property tax exemptions. Additionally, just because your organization is tax-exempt federally doesn't mean you're automatically exempt from all state filings—be sure to verify state-specific requirements. 

3. Sales & Use Tax Compliance 

Just because you're a nonprofit doesn't mean everything is tax-free. Take a close look at revenue from things like ticket sales or auctions, and don't forget about use tax for out-of-state purchases. A little planning now prevents surprises later. Some of this revenue may fall under unrelated business income tax (UBIT), requiring the filing of a 990-T. It's crucial to evaluate these activities and ensure any taxable income is properly reported. 

4. Donor Acknowledgment Practices  

Proper donor acknowledgment isn't just good manners - it's required by the IRS. Send prompt thank-you notes that include the gift amount, a description of any goods or services provided in exchange, and a statement indicating whether the gift is tax-deductible. 

Accurate donor records and clear communication about tax deductibility are essential for both your organization and your donors. 

5. Internal Controls  

Internal controls are essential for safeguarding assets and ensuring operational integrity. Establish proper segregation of duties, such as separating financial collection from reconciliation tasks, and conduct periodic reviews to identify and address potential issues early. 

Additionally, ensure there's a system in place to maintain compliance, like assigning responsibility for timely 990 filings. Small nonprofits often lose their tax-exempt status due to turnover in the treasurer position and a lack of awareness about filing requirements. 

6. Employment Law Compliance  

Protecting your team and organization starts with understanding employment laws. Correctly classify workers as employees or contractors, and stay up to date on benefits, reporting obligations, and state-specific regulations to ensure compliance. 

7. Board Communications  

An informed and engaged board strengthens governance. A well-informed board is your ally in good governance. Share materials before meetings and keep everyone updated on finances and programs. Clear, regular communication helps your board make better decisions. The IRS requires that your board review and approve the draft Form 990 before filing. Since the 990 is publicly disclosed, it's a good idea to ensure all board members understand its contents and implications for transparency with donors. 

8. Policy Development  

Strong policies guide your nonprofit's operations and protect its interests. Start with the basics, like conflict of interest and whistleblower protection policies, which are required disclosures on the 990. 

Ensure that everyone in your organization understands these policies and adheres to them. A culture of compliance starts with clear expectations and accountability. 

9. Public Disclosure Management  

Transparency builds trust and ensures regulatory compliance. Make key documents, such as Form 990s and financial statements, readily accessible and clearly disclose related party transactions and board relationships. 

These documents must be available to the public—either online or by providing copies upon request. Establish a clear process for managing public document requests. 

Following these compliance guidelines helps protect your nonprofit's mission and builds trust with your stakeholders. While each area requires attention, they work together to create a strong operational foundation, from maintaining your tax status and managing donor relationships to developing solid internal policies and fostering board engagement. 

Strengthen Your Compliance Strategy with Lutz 

At Lutz, we've helped many nonprofits navigate these waters successfully. Our nonprofit team understands what you're facing, and we're here to help you stay compliant while focusing on your mission. Contact us to talk about how we can support your organization's goals.