Nonprofits face a maze of federal, state, and local compliance requirements—miss a deadline, and you risk losing your tax-exempt status or facing penalties. Getting compliance right isn't optional; it's the backbone of your organization's legal standing and donor confidence. This checklist breaks down what you actually need to do each year, in the order that matters.
IRS Form 990 Filing
The 990 is your annual tax return and must be filed between May 15 and November 15 (with a possible extension to May 15 the following year). The form you submit depends on your gross revenue: organizations under $50,000 file Form 990-N (e-postcard, free), those between $50,000–$200,000 file Form 990-EZ, and those above $200,000 file the full Form 990. Expect to spend 40–80 hours gathering financials, or budget $1,500–$5,000 if you hire a nonprofit accountant or compliance service to handle it.
File electronically via the IRS's e-file system. Missing the deadline triggers a $25–$100 per-day penalty, capped at $15,000, plus potential loss of exemption if you're late three years running.
State Charity Registration & Renewal
Most states require nonprofits to register with their attorney general's office or charity division before soliciting donations. Renewal deadlines vary—some are annual, others biennial. Costs typically range from $0–$250 per registration, with renewal fees between $50–$500 depending on the state.
Check your specific state's charity bureau website; if you fundraise in multiple states, you'll need to register in each one. Keep a spreadsheet tracking renewal dates for every jurisdiction where you operate. Overlooking even one state registration can result in fines and loss of fundraising privileges in that state.
Board Governance & Conflict-of-Interest Policies
Your board must adopt and maintain a written conflict-of-interest policy that governs how board members and key employees disclose financial interests. The policy should outline when someone must recuse themselves from decisions and how violations are handled. The IRS expects you to have this in place; if audited, you'll need to show adoption minutes and annual signed acknowledgments from all board members.
Dedicate one board meeting per year to reviewing and updating this policy. If you don't have one, a nonprofit attorney can draft a compliant policy for $500–$1,500.
Federal Employment Tax Compliance
If you have W-2 employees, file Form 941 (Employer's Quarterly Federal Tax Return) and deposit payroll taxes on time. Penalties for late deposits are steep—up to 15% of unpaid taxes. Annual filings include Form W-3 and W-2s (due January 31) and Form 940 for unemployment insurance.
Nonprofits claiming the Work Opportunity Tax Credit (WOTC) should verify employee eligibility. Payroll tax mistakes are common; consider using a payroll processor like ADP or Guidepoint ($50–$150/month) to reduce errors.
State Tax Filings & Unemployment Insurance
Register for a state Employer Identification Number (EIN), file state income tax returns (if applicable to your state), and maintain state unemployment insurance accounts if you have employees. Deadlines and filing requirements vary widely by state.
Failure to pay state unemployment insurance on time triggers interest and penalties. Budget $500–$1,500 annually for state tax compliance if handled internally, or $1,000–$3,000 if outsourced to a compliance service.
Annual Audit or Review
Organizations with gross revenue above $750,000 often face donor or grant requirements to conduct an annual independent audit. Below that threshold, a financial review (less rigorous and cheaper) may suffice—typically $3,000–$8,000 versus $8,000–$25,000+ for a full audit, depending on complexity. Some grants or contracts require audits regardless of revenue, so check your funding agreements.
An audit provides third-party verification of your finances and internal controls, strengthening donor trust and board oversight.
Document Retention & Corporate Records
Maintain board meeting minutes, resolution records, financial statements, and compliance documentation for at least seven years. Store these securely, whether in a filing cabinet or cloud system. Your bylaws should outline your record-retention policy.
When comparing nonprofit legal and compliance providers, verify they offer ongoing governance support and document management guidance—not just one-off filings.
Frequently Asked Questions
Q: What happens if we file the 990 late? A: The IRS assesses a penalty of $25–$100 per day, capped at $15,000. If you're late three years in a row, your nonprofit can lose its tax-exempt status entirely.
Q: Do we need a compliance service, or can we handle this ourselves? A: Small nonprofits with simple finances can manage filing and basic compliance internally, but once you exceed $500,000 in revenue or have complex grants, hiring a nonprofit accountant or compliance specialist ($2,000–$8,000/year) becomes cost-effective and reduces audit risk.
Q: When should we do our conflict-of-interest policy review? A: Review it annually at a board meeting, update it every 2–3 years, and have all board members sign acknowledgments each year to demonstrate good governance practices.
Ready to streamline compliance? Explore trusted nonprofit legal and compliance providers on Mercoly to find the right fit for your organization's needs.