8 Ways to Ensure Your Nonprofit Is Tax Compliant

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8 Ways to Ensure Your Nonprofit Is Tax Compliant
US tax law is complicated, especially for nonprofit organizations (NPOs) that must comply with additional regulatory requirements to maintain their tax-exempt status. To help your organization successfully navigate the complexities of today’s tax code, we have compiled a list of best practices to follow. 

Taking these steps throughout the year will help ensure that your tax filings are accurate, complete, and fully compliant – and that your next tax season is relatively stress-free.
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1. File Your Form 990 Annually

To ensure tax compliance, every nonprofit organization must complete an annual Form 990 series filing with the IRS. Essentially, this form discloses basic information on your NPO’s activities, governance, financials, and qualifications for tax-exempt status. 

Form 990 disclosure requirements can vary depending on an NPO’s financial activities and status, so be sure to check the IRS Form 990 series website to determine the correct tax designation and form to file.
 

2. Meet Your State and Local Requirements

To ensure compliance at the state level, you first need to register your organization with the State Revenue Department and maintain an active state business license.

Remember also that every state has its own unique regulatory requirements for nonprofit organizations and that these requirements can change from year to year. To keep NPOs informed, the IRS maintains a complete list of all state compliance standards online. 

Having federal tax-exempt status doesn’t automatically exempt your NPO from state and local taxes. You may be required to pay for other taxes (e.g., on sales, personal property, and on real estate holdings) so make sure you confirm the requirements for your nonprofit organization’s specific tax designation.

 

3. Organize Your Financial Records Well

One of the most important steps you can take throughout the year to ensure tax compliance is to keep accurate and complete records – and organize them well. 

Your recordkeeping system should include a summary of all your organization’s transactions. For most small organizations, the checkbook might be the main source for entries in the books while larger organizations would need more sophisticated ledgers and records. A public charity must keep documentation that supports entries in the books. 

Records to keep on file include contributors’ information, grants written and received, accrued expenses and revenue, bank statements, cancelled checks, IRS letters of determination, Form SS-4, previous tax filings, and Articles of Incorporation, among others.

To ensure you have the information you need at year’s end, develop a recordkeeping process that is thorough and easy to manage. An investment in accounting software can help. It is important to keep both physical and digital copies of your records as well.

In terms of how long to keep records on file, this can vary depending on the type of record in question. The IRS publishes its requirements for recordkeeping online here.
 

4. Avoid Business Practice Violations

To qualify for tax-exempt status, your nonprofit organization must meet a host of IRS requirements governing these and other aspects of your industry’s practices:

Private benefitInsiders may not benefit from your nonprofit organization’s income or assets.
LobbyingWhile NPOs are permitted to engage in lobbying on a limited basis, lobbying must not be a “substantial part” of their overall activities
Political activityAll 501(c)(3) organizations are prohibited from participating in political campaigns for any candidate running for public office
Unrelated Business IncomeEarning too much income generated from unrelated activities can jeopardize an nonprofit organization’s tax-exempt status
Annual reporting obligationMost NPOs must report certain information annually to the IRS
For complete details on these and other 501(c)(3) requirements, visit the IRS website.

5. Pay Your Payroll Taxes

As with for-profit organizations, NPOs must withhold federal income tax and Federal Insurance Contributions Act (FICA) taxes from employee salaries and are also responsible for paying the employer portion of FICA taxes. 

However, nonprofit organizations are not required to pay federal unemployment tax (FUTA), which is an employer-only payroll tax. As for state unemployment taxes (SUTA), the requirements vary by state, so stay updated on what your own state requires. 
 

6. Keep Your Executive Compensation in Check

NPOs must also ensure that their officers and directors meet IRS requirements for reasonable compensation. According to the IRS, reasonable compensation equals “the value that would ordinarily be paid for like services by like enterprises under like circumstances.”

To determine what constitutes reasonable compensation, the IRS factors in the total compensation of an individual, which can include wages, employee benefits, paid time-off, bonuses, and health insurance. As a best practice, nonprofit organizations should regularly review their policies for highly-compensated employees to ensure that salaries and benefits remain in compliance.  

 

7. Outsource Your Tax Preparation

As a tax-exempt organization, maintaining transparency, ensuring your funds are used to support your mission, and meeting U.S. GAAP requirements are all important to maintaining that status. One of the best ways to ensure that your NPO produces complete, accurate financial records at year’s end is to bring in a team of accounting and tax professionals to assist you throughout the year.

Outsourcing offers other benefits as well, including access to tax experts who can help you stay fully updated on any changes in the tax code impacting your nonprofit organization. Plus, an outsourcing model will free up your own team to focus on the main purpose of your organization: ensuring that your mission’s beneficiaries, donors, and other stakeholders are well served. This can also extend to specialized support areas such as ESG reporting services to align with today’s growing compliance expectations.

Also read:  5 Essential Considerations for Outsourcing your Nonprofit’s Bookkeeping & Accounting

Partner with Scrubbed!

When you partner with us, we bring to your organization the integrity, empathy, openness, and commitment to excellence you value. We can work closely with your CFO – or serve as your entire accounting department – to accurately track all transactions, ensure compliance with donor and grant requirements, streamline processes, and prepare financial statements that meet all federal, state, and local laws. Let us help you operate in compliance, preserve your tax-exempt status, and fulfill your mission for years to come. Set up your free consultation today.

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Data, Cash and Deal Readiness: Finance Lessons for Scaling Technology Companies

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At The Future Is Fractional 2026, a virtual conference hosted by finance and accounting advisory firm Scrubbed on September 24, 2026, Session 4 split into three industry breakouts running at the same time: real estate, nonprofit and technology. In the technology track, Scrubbed Accounting Advisory Services Manager Anthony John Rogador spoke with Abdul Wahab Zafar, SVP of Finance at Studycast, who has run M&A integrations and systems consolidations at fast-scaling companies. Key Takeaways: Accurate financials start upstream. Customer, contract and billing data need a common key tying them together. 90–95% data alignment is often enough. The last last few percent can cost more than it’s worth. Forecast usage-based revenue by cohort . In Zafar's experience, a cohort’s second year grows fastest, then growth settles to low single digits. Protect cash with payment terms. Hold customer terms firm and negotiate longer vendor terms to create a cushion. Operate as if you’ll sell tomorrow. Buyers judge revenue by how well customer, contract and billing data tie out. Don't rush to merge systems after a deal. Move acquired customers into the process that already works. Meet the Speakers Anthony John Rogador (moderator): Accounting Advisory Services Manager, Scrubbed. [LINK: LinkedIn] Abdul Wahab Zafar, MBA, CMA : Senior Vice President of Finance, Studycast, with experience leading M&A integration, financial systems consolidation and scaling finance operations at fast-growing companies .  Building a Single Source of Truth upstream Finance, Zafar said, takes data from everywhere else and consolidates it. So accurate financials start 'on the head of the pipe,' with customer data. He thinks of each data set as a 'cube,' and the order matters: customer first, then contract, then billing, then vendors. Data Set The Question To Answer Customer Data  Who is buying from you, and is that record correct? Contract Data  What exactly did they buy? Billing Does billing reflect the same customer name and contract terms? Vendor Data Who do you pay, under which contracts, against which invoices? When those line up, he said, the financial data naturally becomes accurate and trustworthy. Standardizing data across disconnected systems Growing businesses add the tool they need and forget to connect it. Zafar’s approach: Define the North Star for your data, then break it into the steps needed to get there. Get leadership aligned. If data alignment isn’t a priority for sales or customer teams, finance can only do so much. Create a common hook. Every record in the customer, contract and billing “cubes” should share a key so anyone can trace one customer across all three. Decide whether the last 5% is worth it. Reaching 90–95% alignment is often achievable. The final 5% may require retooling working processes or systems that already work, and in his experience is often less cost-effective than working around it. Rationalizing the tech stack before adding tools New finance tools launch constantly. Zafar’s discipline before buying one Identify the actual problem you’re solving, in depth. Check whether your current systems can solve it . Many companies use only part of what a platform like NetSuite can do. Only then evaluate third-party options, with a clear picture of what you need. Keep it simple. The fix is sometimes the smallest tool on the market and don't create processes 'just to make it look like you're doing a good job.' Complexity has a staffing cost. “If it’s more complicated processes, then a lot of times you need a bigger team to manage those processes,” and most small and mid-sized finance teams run lean. Forecasting Usage-based Revenue by cohort Usage-based revenue billed on how much customers use the product, not a flat fee) shifts with business days, holidays and seasonality. As Zafar put it, 'It's not as simple as, the customer signed a $12,000 contract, my revenue is $1,000 a month.' Studycast groups customers into cohorts by the year they went live, because cohorts tend to behave consistently over time. Cohort Year Typical growth, in Zafar's experience Why Year 1  Partial year Customers go live partway through the year Year 2  Roughly 70% to 100% The first full year of revenue Years 3-4 onward  Around 4–5% a year Growth declines sharply, then settles Forecasting each cohort separately is more reliable than projecting the whole customer base at once. Separating enterprise and small-business customers to handle outliers The outliers at Studycast, single customers growing 100% or more a year, were mostly enterprise customers who went live at one site, then rolled out to others, compounding revenue month after month. The team now forecasts SMB and enterprise customers separately. Finance can’t forecast enterprise accounts alone, he added. 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The Nonprofit Spotlight was one of three industry spotlights at The Future Is Fractional 2026, hosted by Scrubbed on September 24, 2026. Laurence Ruelo, Director of Business Development at Scrubbed, spoke with Costa John of CFO Assignments, who has decades of CFO experience across nonprofit and for-profit organizations. They covered the three pillars of financial resilience, tracking restricted funds, what to do when a major funder pulls out, board reporting, and how to build finance capacity without overbuilding. The short version: watch unrestricted cash, act early and in phases when funding is cut, and give your board the forward look rather than the history. For many nonprofits, the funding hasn’t disappeared, but its timing has become harder to predict. Grants arrive late. Proposals take longer to secure. Visibility six or twelve months out is thin. At The Future Is Fractional 2026, a virtual conference hosted by finance and accounting advisory firm Scrubbed on September 24, 2026, Session 4 split into three industry breakouts running at the same time: real estate, nonprofit and technology. In the nonprofit track, Scrubbed Director of Business Development Laurence Ruelo asked veteran CFO Costa John how nonprofits can build a finance function that is resilient, useful to leadership and scalable when resources are already stretched. Key Takeaways: Resilience rests on three legs: liquidity, flexibility and the cash cycle. Timesheets and integration drive restricted fund tracking. Programs are delivered by people, so staff time is what releases restricted funds. When funding is cut, act early and in phases. The first cost reductions are the cheapest ones. Don't hire strategy to fix bookkeeping. Get the books closing cleanly before bringing in a fractional CFO, or the CFO gets pulled back into reconciliations. 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Costa John : CEO CFO Assignments, with decades of CFO experience across nonprofit and for-profit organizations, including as CFO of Sapiens North America.  The Three Pillars of Nonprofit Financial Resilience John frames resilience as a three-legged stool: Liquidity: The level of unrestricted funds the organization can draw on. Flexibility : The cushion to absorb a delayed grant or a slow proposal. The board usually sets it with the CFO as a target number of months of cash operating expenses. The cash cycle: How many days the organization must cover rent, salaries, travel and office costs before funding arrives. Together, they give the organization a stable footing. John acknowledged it’s hard for small nonprofits, but said building toward it should be a priority. How to Track Restricted Funds without the Spreadsheet Wrestling Match Restricted funds are grants or donations that can be spent only on a specific purpose or program. Start with timesheets. Nonprofit programs are delivered by people, so releasing restricted funds and matching expenses to grants comes down to how staff time is spent. “If you cannot have a good on-hand grip of where and how your program people are delivering against the mission, you’re already on a slippery slope." Integrate the systems. The more the organization’s systems connect end to end, the less restricted revenue tracking becomes “a wrestling match between confusing and sometimes broken spreadsheets.” Affordable, easier-to-integrate software has made that more realistic than it used to be. Contingency planning when a major funder pulls out Stay close to funders. Organizations with strong funder relationships can often see cuts coming, whether funders planned them or are reacting to their own budget pressures. Have the outline of a plan ready. John described a phased response, from least to most disruptive: Delay contractors and capital spending not required this year. Delay replacements when people resign. Delay salary increases. Delay benefits such as 401(k) matches. Only if those steps don’t buy enough time, consider reductions in force. Act early. Once you know funding is going away, move. “Your first cost reduction steps are ironically your cheapest ones.” Hesitating can make the eventual response more painful and more expensive. Board Reporting: Forward-looking Information, Not just data “Data is not the same as information,” John said. Boards can drown in numbers. He recommended spending little time on historical statements beyond a status update. “It’s hard asking a board to govern an organization looking in the rearview mirror.” Include in Board Updates What It Means The forward look The outlook for the coming period The impact If this happens, here's what it means financially Decisions,plural A range of choices and their impacts, not a single option to approve or reject Non-financial metrics, with the CFO at the table John pushed back on the idea that non-financial metrics are outside the CFO’s lane. Measures like schools reached, children served or outcomes achieved all have financial drivers underneath, and the CFO can help program leaders see the dollar value of their impact. He sees a missed opportunity with funders: payback . In one illustration, a program costing about $72,000 per school produces an estimated $112,000 per school in lifetime health and education benefits. 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John divides finance into two parts, with different ways to resource each: Non-negotiable: compliance and reporting Value-added: strategy and planning What it covers The Form 990, the audit, paying vendors, payroll Forecasting, budgeting, support at the fundraising and budget tables The risk It “can become a self-consuming monster” without integration and automation It gets crowded out if the CFO is pulled into bookkeeping How John would resource it Outsource it, or at minimum keep it separate from the CFO role A part-time or fractional CFO, kept out of the bookkeeping weeds Don’t hire strategy to fix bookkeeping. Bringing in a fractional CFO for strategic work while the books still don’t close cleanly means the CFO gets dragged back into reconciliations, “the most expensive way to solve the wrong problem.” Messy reconciliations also pull program leaders away from the mission. Start with the lightest system that works . 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Tax, Insurance and Cash Flow: Finance Lessons for Multi-Property Real Estate Portfolios

Tax, Insurance and Cash Flow: Finance Lessons for Multi-Property Real Estate Portfolios

The Real Estate Spotlight was one of three industry spotlights at The Future Is Fractional 2026, hosted by Scrubbed on September 24, 2026. Scrubbed partner Ejie De Jesus moderated a conversation with Geraldine Serrano, Director at Specialty Tax Group; Alex Gilmete, commercial property and casualty advisor at USI Insurance Services; and Blake Peters, founder and principal of Peters Specialty Tax Services. They covered cost segregation and bonus depreciation, R&D tax credits for real estate, insurance availability and replacement costs, and shared and layered coverage for portfolios. The short version: bring tax and insurance specialists in before decisions are made, check that your coverage reflects today’s replacement costs, and look beyond a general CPA for specialized incentives. Real estate finance is rarely one entity with one set of books. It’s multiple properties, multiple entities and often multiple jurisdictions, in a tax and risk landscape that keeps shifting. At The Future Is Fractional 2026, a virtual conference hosted by finance and accounting advisory firm Scrubbed on September 24, 2026, Session 4 split into three industry breakouts running at the same time: real estate, nonprofit and technology. In the real estate track, Scrubbed partner Ejie De Jesus brought together three specialists in cost segregation, tax incentives and commercial insurance to talk about the strategies owners most often miss. Key Takeaways: Timing is the biggest gap. Tax incentives and cost segregation are often considered after key decisions are made, when the options have already narrowed. Cost segregation accelerates depreciation. Splitting a building into shorter-lived components lets owners take larger deductions sooner, and 100% bonus depreciation, restored by 2025 tax law, can pull those deductions into year one. R&D credits reach further than most owners think. Engineering, structural and energy design work on a property may qualify. 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Incentives such as investment tax credits, R&D credits and energy efficiency deductions are buried in the tax code, and when owners do know about them, they’re often “looked at a little too late in the process.” Evaluating them at the start of a project can improve returns, help finance it and give investors clearer visibility. Risk has shifted fast.  Alex Gilmete said insurance has changed dramatically in just a few years. Supply chain issues, tariffs and, in California, wildfire risk have reshaped how carriers, lenders and investors view a property, and how much liability an owner carries. Property risk and insurance volatility Standard carriers, non-admitted carriers and the FAIR Plan Some properties can no longer be insured by standard A-rated carriers, Gilmete said. Location, fire exposure and crime all affect what carriers will take on. 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Shared and layered coverage for portfolios Rising premiums reduce net operating income, and lower NOI lowers property value. For portfolios, Gilmete described a shared and layered approach. Take 10 properties worth $10 million each. The owner may not need $100 million of primary coverage, since a total loss on every property in one policy period is unlikely unless they share a fire or flood zone. Instead, a shared primary layer, perhaps $30 million, covers all 10, with excess layers stacked on top from different carriers. Each higher layer is less likely to be used, so it costs less per dollar of coverage. Insurance review checklist, drawn from the panel Does the policy limit reflect today’s replacement cost, not the original value? How old are the roof, HVAC, plumbing and electrical systems, and what fire suppression and egress are in place? Is everything disclosed to the carrier accurate? Carriers may inspect, and can cancel if it isn’t. How do the location’s fire, flood and crime exposure affect which carriers will quote? For a portfolio, would a shared and layered structure fit your risk tolerance? Cost Segregation: Accelerating Depreciation for Cash Flow What is cost segregation? Cost segregation is a tax strategy that separates a building’s components into shorter depreciation periods. Instead of depreciating the whole property over 27.5 years (residential rental) or 39 years (commercial), owners can deduct shorter-lived components faster, lowering current tax liability and increasing cash flow. The Lego analogy Serrano’s explanation: picture a house built of Legos. The IRS treats a residential rental as wearing out over 27.5 years. But not every piece lasts that long. Carpet, floor coverings, cabinets and countertops are five-year pieces. Driveways and landscaping are 15-year pieces. A cost segregation study takes the house apart and sorts the shorter-lived pieces into their own buckets. Bonus depreciation under the One Big Beautiful Bill Act The One Big Beautiful Bill Act, signed in July 2025, restored 100% bonus depreciation and made it permanent for qualifying property acquired after January 19, 2025. Combined with cost segregation, that lets owners deduct the full cost of those shorter-lived components in the first year. Serrano told the story of a client she called “Mr. I Hate the IRS,” who was about to mail a $100,000 check to the IRS. Cost segregation studies on his 12 Denver-area rentals eliminated the liability. His CPA hadn’t recommended it because she believed it applied only to commercial property. Results depend on the owner's situation. Rules on passive rental losses and depreciation recapture when a property is sold can change the math. She also pointed to manufacturers. A newer provision allows qualifying manufacturing buildings to be fully expensed rather than depreciated, so those owners may not need a cost segregation study at all. Before or after construction? Before, Serrano said. “The sooner we talk about the project, the better.” She cited an owner who built an Oakland office from shipping containers and welded them together because it was cheaper. Bolting them, so they could be taken apart, might have qualified far more of the building as five-year property. That may not have changed his choice, but he would have made it knowing the tax impact. He also demolished an existing structure without his CPA setting up a general asset account, and missed a tax benefit as a result. For cost segregation, she noted, what matters is when a building was bought and placed in service, not its age. Insurers look at age. Planning has to account for both. R&D Tax Credits for Real Estate and Construction Peters called the R&D credit “one of the worst named credits out there.” For tax purposes, it can cover work involving analysis, alternatives and design, not just scientists and software. In real estate, that can include: Engineers evaluating structural methods depending on contract terms HVAC and energy design to meet efficiency or LEED requirements Custom engineering to improve a building’s performance Manufacturers building capital-intensive facilities Investment in AI, built in-house or subcontracted, across industries His advice: don’t ask “do we do R&D?” Ask where the money and effort are going. What changed recently. From 2022 through 2024, research expenses had to be spread over five years or more instead of deducted right away, research expenses had to be amortized rather than deducted right away, which made the credit less attractive. Peters said the One Big Beautiful Bill Act fixed that going forward and, for some businesses, retroactively. Companies that stopped claiming the credit should reassess. Cost segregation vs. the R&D tax credit. Header Header R&D Tax Credit What it does Accelerates deductions, which lower taxable income A credit that reduces the tax owed dollar for dollar What can qualify, per the panel Shorter-lived components: flooring, cabinets, countertops, driveways, landscaping Structural engineering, HVAC and energy design, custom building systems, capital-intensive facilities When to look Before construction or acquisition decisions At the front end of a project Overlap - Custom HVAC and energy work often touch both, so owners can address them together Capital Improvements: Tax benefit and Insurability Do roof or HVAC upgrades lower insurance costs? Not directly, Gilmete said. But major carriers may refuse to quote older buildings that haven’t been upgraded. He described a Santa Clara property where the roof had to be replaced before A-rated carriers would consider it. On the tax side, Peters said custom engineering for HVAC or energy performance can qualify for the R&D credit. Keep the Decisions, Bring in the Experts The panel’s closing advice was about what to keep in-house. General CPAs may be excellent but lack this level of specialization. Serrano offers clients a second review by another CPA when their current CPA is unfamiliar with cost segregation. Bringing in specialists early to review tax incentives, cost segregation, contracts, insurance policies and risk tolerance lets the owner decide with a full picture. As Gilmete put it, the experts “fill out your dashboard, and then the owner gets to make decisions based on that dashboard.” This session is part of TFIF 2026.  To see how planning connects to talent, AI and team design, read, read Own the Core, Access the Rest: What The Future is Fractional (TFIF) 2026 Revealed About How Finance Teams Are Being Rebuilt   what finance leaders are rethinking about talent, AI and team structure.

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