Easy Steps To Protect Your Nonprofit and Keep Your Nonprofit Compliant

Businessmen shaking hands.

If you are starting a 501(c)(3) nonprofit in your state, you have come to the right place. After following the easy steps for nonprofit formation, follow this guide to help keep your nonprofit compliant and protected.

Use our guides below to learn how to keep your nonprofit compliant in your state:

How to Protect Your Nonprofit

Get Business Insurance

As with any other business, there may be risks involved in running a nonprofit. Getting insurance for your nonprofit allows you to focus on your passion while minimizing your liability.

Here are some of the common types of insurance you may want to consider for your organization:

  • General Liability Coverage
  • Directors and Officers Coverage
  • Social Service Professional Coverage

Your coverage needs will vary based on your organization and the work you do.

Properly Sign Legal Documents

There will be times when you will be signing a document on behalf of your nonprofit. It is important that these times are easily distinguishable from when you are signing a document as an individual. If a document isn’t properly signed, you might suddenly find yourself personally responsible for something the organization should have been liable for.

To avoid such confusion we recommend you and all the members of your organization follow the following format:

  • The official name of your nonprofit
  • Your signature
  • Your full legal name
  • Your position in the organization

How to Keep Your Nonprofit Compliant

Maintain a Registered Agent

Nonprofits are required to maintain a registered agent with an office address in the state where they operate their business. If the agent or the office address changes, you will need to notify the state either by amending your Articles of Incorporation, updating a periodic report, or filing a Statement of Change form.

NOTE: Failure to do so may result in termination of the corporation.

File Required Periodic Reports

The state may require your organization to file a report, no more than once every four years. If a report is required, the state will send a notice to the registered office with instructions on when the report is due.

NOTE: Failure to file a requested report may result in the termination of the corporation.

Pay Your State Franchise Tax

Every nonprofit corporation needs to pay a franchise tax unless the organization has received an exemption from the Comptroller of Public Accounts. To determine whether your organization can apply for exemption from the franchise tax, check out your state’s business services division website.

NOTE: Even after applying for exemption, your organization must keep paying the franchise tax until the exemption has been approved.

Determine Business Permits and Licenses

Depending on your state, your nonprofit may need a general business license. Otherwise, most licenses and permits are issued on a local level. Check with your city and/or county clerk to determine which licenses your nonprofit may need.

Fundraising

If your nonprofit solicits donations or contributions, you will likely need to register with the state in order to do so. Contact the Secretary of State (or applicable charities division) for more information.

Employees

If your organization will have employees, you’ll likely need to inform the state for tax purposes. Consult your state’s Department of Revenue (or applicable new hire division) for more information.

Public Inspection Rules for all 501(c)(3) Organizations

All organizations that have been granted the 501(c)(3) status are required to disclose the following documents to the public when requested:

  • Annual returns for three years after the due date (this includes returns like Form 990, 990-EZ, 990-PF, and any Forms 990-T)
  • All Form 990 schedules (except portions of Schedule B), attachments, and supporting documents.
  • Application of exemption and all supporting documents such as Form 1023
  • The official paperwork from the IRS shows that your organization has tax-exempt status.

The following do NOT need to be shared with the public

  • Portions of Schedule B of Form 990/990-EZ that identify the contributors. (You only need to disclose the amount contributed and the nature of the contributions)
  • Any unfavorable rulings such as an earlier denial of tax-exempt status.
  • Any information the IRS has said you can withhold. This may include things like sensitive patents and trade secrets.

FAQ:

How long do I have to produce these documents if requested?

Ideally within the same day. If your organization doesn’t have an office or maintains limited hours during parts of the year, the information should be made available within two weeks.

Do I need to provide copies of the documents?

If someone asks for copies in person or in writing you must provide them with copies.

Can I charge for copies?

You can charge a reasonable amount for making copies of the documents requested.

NOTE: It may be easiest to have the documents available on your website so that anyone who requests copies can be sent to the site. This allows you to stay compliant without having to spend a lot of time dealing with document requests.

Annual Returns for Tax-Exempt Organizations

Most tax-exempt nonprofit organizations are required to file an annual return with the IRS (Check the list of exceptions).

Which form you should use to file the annual returns depends on the annual gross receipt amounts for your organization.

"Gross receipt" is defined by the IRS as “the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses”

  • For gross receipts ≤$50,000 --- File 990-N
  • Gross receipts <$200,000 and total assets <$500,000 --- File 990-EZ
  • Gross receipts >$200,000 or Total assets >$500,000 --- File 990

For any questions, you can call the IRS at

  • (800) 829-3676 (Form-related questions)
  • (800) 829-1040 (General information)

When is Form 990 due?

You have a little over four months after your taxable year comes to an end to file Form 990. It is due on the 15th day of the fifth month. So if your taxable year ends on December 31, your Form 990 is due on May 15.

NOTE: If your organization fails to file Form 990 for three consecutive years, it will automatically lose its tax-exempt status.

Report Unrelated Business Income

If your organization has a gross income of ≥$1,000 from a trade or business that is not related to the stated purpose of the organization, then it must file Form 990-T to pay tax on that income.

If you expect to pay $500 or more for the year in taxes on unrelated business income, your organization must pay a quarterly estimated tax on the unrelated business income using Form 990-W.

State of Nonprofit Quicklinks

IRS - Information for Charities & Nonprofits

IRS - Required Provisions for Organizing Documents

IRS - 990 Series for Tax-Exempt Organizations

IRS - Applying for Tax-Exempt Status

IRS - 501(c)(3) Compliance Guide

Small Business Administration - License and Permits