Nonprofit Compliance 101: What You Need to Stay Legal and Fundable

By Willie Finklin, CFRE, The Grant GOAT

Starting a nonprofit is a powerful way to make an impact—but if you’re not compliant, you won’t last long.
That’s the hard truth.

I’ve seen passionate founders with game-changing ideas get shut down because they missed a filing, mishandled donations, or failed to keep their records straight.
That’s not going to be you.

Today, we’re going to break down everything you need to stay legal, fundable, and protected.

What Is Nonprofit Compliance?

Nonprofit compliance is simply the process of following the rules—federal, state, and local regulations that govern how nonprofits operate.
It’s not optional.
If you want to maintain your tax-exempt status and build credibility with funders, you have to make sure your organization is legally sound.

Nonprofit Compliance Covers:

• Federal Reporting (IRS)

• State Filings

• Charitable Solicitation Registration

• Employee Regulations

• Data and Financial Privacy

Federal Requirements: What the IRS Needs to See

To keep your 501(c)(3) status, you must meet federal reporting requirements.
The IRS expects you to file certain forms and follow strict guidelines to maintain your tax-exempt status.

1. File Form 990 Annually

Every year, your nonprofit must file one of these:

• Form 990-N (e-Postcard): If your gross receipts are $50,000 or less.

• Form 990-EZ: If your gross receipts are between $50,001 and $200,000.

• Form 990: If your gross receipts exceed $200,000 or your assets are over $500,000.

Failure to file for three consecutive years means automatic loss of your tax-exempt status.

2. Issue Donation Receipts

For every donation over $250, you must provide a receipt that includes:

• Your organization’s name

• Amount of the donation

• A statement that no goods or services were provided in exchange

3. Acknowledge Major Gifts

If you receive large donations—especially those over $5,000—you may need to file additional documentation with the IRS.

State Compliance: Don’t Skip This Step

A lot of founders think getting federal tax-exempt status is enough.
It’s not.

You also have to register in your state to:

• Solicit donations

• Run fundraising events

• Operate legally

Examples of State Requirements:

• Annual Report Filing: Many states require you to file a yearly report to stay active.

• Charitable Solicitation Registration: If you’re asking for donations, you need to be registered with your state.

• Business Licenses and Permits: If you operate a physical location, you may need a business license.

Pro Tip:
Check with your Secretary of State and Attorney General’s Office to understand your specific requirements.

Charitable Solicitation Registration

If you plan to fundraise across state lines or online, you may need to register in multiple states.
This includes:

• Sending out donation requests

• Running online fundraisers

• Hosting events that draw out-of-state donors

Where to Register:
You can use platforms like Harbor Compliance or NPSS Corp to manage multi-state registrations.

Employment and HR Compliance

If you have staff—whether they’re full-time, part-time, or contract—you need to be compliant with:

• Payroll Taxes: Federal, state, and local withholdings

• Workers’ Compensation: Even if you only have one employee, many states require this.

• Health and Safety Regulations: OSHA standards still apply to nonprofits

Pro Tip:
Hire a payroll service to handle withholdings and compliance. It’s worth the cost to avoid penalties.

Privacy and Data Protection

Nonprofits collect a lot of sensitive information:

• Donor addresses

• Payment information

• Volunteer contact details

To stay compliant:

• Use encrypted databases for storing personal information

• Have a privacy policy on your website

• Limit access to sensitive data—only key staff should have it

Pro Tip:
If you process online donations, make sure you’re PCI-compliant to protect credit card information.

Record Keeping: The Proof You’re Doing Things Right

It’s not enough to be compliant—you have to prove it.
That means maintaining records for everything you do.

Here’s what to keep:

• Board Meeting Minutes: Proof that decisions are made collectively and ethically

• Financial Statements: Balance sheets, profit and loss statements, and cash flow

• Grant Reports: Funders often require evidence that their money was spent correctly

• Donation Receipts: Keep copies of all major donation receipts

Pro Tip:
Use cloud-based storage (like Google Drive or Dropbox) to organize your files and make them easily accessible.

Nonprofit Compliance Calendar: Never Miss a Deadline

The easiest way to stay compliant is to create a compliance calendar.
Here’s what it should include:

• Annual Filing Deadlines: IRS 990, state reports

• Quarterly Financial Reviews: Board meetings to review finances

• Fundraising Registration Renewals: State-based requirements

• Grant Report Due Dates: Keep funders happy by submitting on time

Pro Tip:
Set reminders a month before each deadline to give yourself time to prepare.

Final Word: Compliance Isn’t Just Paperwork—It’s Protection

Listen, I know this isn’t the exciting part of running a nonprofit.
But compliance is what protects your mission.

When you stay organized, transparent, and above board, you build trust with funders, donors, and the community.
You won’t just survive—you’ll thrive.

Because there’s nothing more powerful than a nonprofit that’s built right and built to last.

We’re here when you’re ready to set that foundation.