Embarking on the journey of starting a nonprofit is both exciting and daunting. One of the most critical aspects of this process is understanding and navigating the legal and tax requirements, particularly obtaining 501(c)(3) status. This guide is designed to walk you through these steps, ensuring your nonprofit is set up correctly and compliant from the start.
Step 1: Establishing Your Nonprofit Corporation
Before applying for 501(c)(3) status, you must establish your nonprofit legally. This involves:
- Choosing a unique name that complies with state regulations.
- Appointing a board of directors, which plays a critical role in governance and compliance.
- Filing articles of incorporation with your state’s nonprofit corporation filing office.
- Drafting bylaws to outline how your organization will be governed.
Review our State Requirements page to learn about what is specifically required for your state of operation.
Step 2: Obtaining an Employer Identification Number (EIN)
Even if you won’t have employees initially, an EIN is necessary. This number is used to identify your organization for tax purposes. You can apply for an EIN online or by mail through the IRS.
Step 3: Applying for 501(c)(3) Status
The 501(c)(3) status grants your nonprofit tax-exempt status and allows your donors to claim tax deductions for their donations. To apply:
- Complete and submit IRS Form 1023, the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. There’s also a shorter version, Form 1023-EZ, for select organizations that qualify. The IRS estimates filling out the 1023 can take over 100 hours!
- Include your organization’s detailed description, including your mission, activities, and financial structure.
- Pay the application fee, which is either $275 or $600, depending on the application.
Step 4: Understanding Tax Exemptions
Once you receive 501(c)(3) status, your nonprofit is exempt from federal income tax. However, you must still file an annual information return (Form 990) with the IRS. This form details your organization’s finances, activities, and governance.
Step 5: Registering with Your State
Most states require nonprofits to register as a charity, especially if you plan to solicit donations. This typically involves:
- Filing with the state’s charity bureau or a similar regulatory body.
- Regularly renewing your registration and updating any significant changes in your organization.
Review our State Requirements page to learn about what is specifically required for your state of operation.
Step 6: Ongoing Compliance
Staying compliant involves more than just annual filings. Ensure that your nonprofit adheres to both federal and state regulations, including maintaining proper records, adhering to governance policies, and following fundraising regulations.
Conclusion
Starting a nonprofit requires careful attention to legal and tax details, especially when it comes to obtaining and maintaining your 501(c)(3) status. Following these steps can set a solid foundation for your organization, ensuring it operates legally and efficiently. Remember, while this guide covers the basics, seeking professional advice from organizations like BryteBridge Nonprofit Solutions can provide tailored support and help navigate the complexities of nonprofit management and compliance.
