M+M 007: Compliance Isn’t Fun, But It’s Needed

You probably didn’t start your mission-driven organization because you love tax forms, business licenses, and insurance.

If you did, we should talk, because we’d probably get along!

The reality is though that even the best-run organizations can run into serious trouble if compliance slips through the cracks.

Late filings or missing documentation can cause funding delays, trigger penalties, or worst of them all put your organizational status at risk.

It rarely feels urgent, so it’s the first thing to slip when things get busy.

I’ll lay out a straightforward system to help you stay on top of nonprofit compliance without letting it consume your time.

And to spoil the plotline early…it’s not groundbreaking. But it is something I’ve implemented in just about every organization I’ve worked with so I know it works.

Compliance is all about protecting the mission you’re working so hard to grow.

Primary Compliance Areas

🧾 All Things Taxes

• Donation Receipts: Are your donor letters in line with IRS standards? If a donor gives over $250, they must receive a proper receipt with your EIN, donation date, and statement that “no goods or services were received,” unless they were. 

• W-9s: Do you have an updated W-9 for your organization? Many funders will request it before releasing funds. The latest version of the W-9 was updated in March 2024.

• 1099s: Are you sending Form 1099s to contractors you paid more than $600? These are due to them by January 31st every year.

• Form 990: This is your organization’s annual return and a public-facing document. It must be filed with the IRS based on your fiscal year-end and should be reviewed by the board before submission. Late filings can result in penalties or loss of exempt status. May 15th is the first filing deadline, but extensions can be made until November 15th. 

• Sales Tax + Unrelated Business Income Tax: Some activities in your organization may trigger sales taxes (ex. Gala tickets or silent auction items) or unrelated business income taxes (ex. Merch). Confirm that you’re in compliance with both federal and state jurisdictions on both of these items.

• Payroll Taxes: Most modern payroll companies will handle this for you, including both state and federal filings. Confirm that they are handling these for your organization and you should be in a good place!

📋 Legal Registrations

• Secretary of State Filing: Most states require you to file annually to stay active. If this lapses, your organization could lose its ability to operate in the state.

• Business License: Even nonprofits need local business licenses. Check with your city or county to make sure you’re renewing annually.

• Charitable Solicitation License: In many states, if you’re raising funds, you’re required to register. It’s easy to overlook, especially for smaller orgs, but critical for compliance and donor trust. Most states have a reasonable threshold or certain activities you have to clear before having to file. 

• State Review/Audit Thresholds: Many states won’t renew your charitable solicitation license if you don’t comply with their review / audit thresholds. In fact, many require proof when applying for the license. Know those thresholds and plan ahead, especially if you’re close to them or applying for government or foundation funding that may require an audit.

🛡 Risk & Insurance Reviews

• Annual Insurance Review: When’s the last time you looked at your policies? You should be reviewing coverage annually - especially if your staffing, programs, or budget have changed. This includes general liability, D&O insurance, cyber liability, and more.

• Technology Review: In a world where we hear about data hacks every day, your critical data could be at risk. Take basic measures like requiring two-factor authentication and making sure team members have separate passwords for all accounts. 

Why This Matters + What To Do Next

All of the items above are ones that can deter you from what you want to do…drive your mission forward!

• Grants can be delayed or denied because of an expired license or missing documentation.

• Board confidence erodes if it looks like the basics aren’t being handled.

• Public trust fades when your Form 990 shows late or inconsistent filings.

All of those can be avoided by managing these items with an established process.

What I’ve found works well and that I’ve implemented for several organizations is a simple checklist.

The finance team all works off of a checklist every month when closing the books, running reporting, etc. There’s a section for monthly tasks, quarterly tasks and annual tasks.

Most of the compliance items fall under quarterly or annual.

This ensures that they are reviewed every month and flagged if action is needed. 

It’s not worth it to get an email that you’re out of compliance and have to take that to your board. Trust will erode and it’ll distract you from your mission.

What’s Next

Next week, we’re covering the fun stuff…planning!

Budgeting, forecasting, and decision-making that isn’t just reactive, but forward-looking. Once your foundation is solid (operations + controls + compliance), it’s time to aim higher.

And that’s where planning comes in.

Let’s build something sustainable.

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