If you’re starting a nonprofit, you’ll need to register as a 501(c)(3) organization to be exempt from paying federal or state income taxes. Nonprofit registration with the IRS can take three months to one year; however, the IRS currently issues 80% of Form 1023 application determinations within 191 days.
Considering this timeline, it’s important to get all your ducks in a row before submitting your registration form. Take these six steps to register your nonprofit and start operating as a charitable organization.
[Read more: How to Start a Nonprofit]
Name your organization
The first step is to choose a non-trademarked name for your organization. This isn’t a decision you want to rush into—your nonprofit’s name should clearly convey your mission and impact.
The name can help you bring in new supporters and grow your community. A name is necessary to register the nonprofit and apply for tax-exempt status. Plus, changing your name down the road can be a hassle.
Once you’ve chosen a name that represents your organization, make sure it’s available. Check with the Secretary of State and the U.S. Department of Commerce to ensure the name hasn’t already been trademarked.
Select a board of directors
Your board of directors oversees the organization and makes policy and financial decisions. Depending on your state, you may be required to select the board of directors before registering your nonprofit.
For your initial board members, look for individuals who believe in your nonprofit's mission. They should also have a certain level of business experience to contribute.
It’s a good idea to look for individuals who have some experience serving on a board of directors. In particular, they need to understand that the board provides governance but doesn’t manage the nonprofit.
[Read more: How to Join the Board of a Nonprofit]
The criteria governing 501(c)(3) organizations are strict, but doing so is worthwhile for those seeking federal tax exemption and the ability to receive tax-deductible donations.
Apply for an EIN
Even if you don’t have any employees, you need to apply for an Employer Identification Number (EIN). The IRS uses this nine-digit number to track your organization’s activity. You’ll also need this number to open a business bank account and to file for 501(c)(3) registered status. You can apply for a free nonprofit EIN on the IRS’s website.
File the articles of incorporation
The articles of incorporation make up the primary document that forms a corporation for your nonprofit. This document is not difficult to fill out and should include the following information:
- The name of your nonprofit.
- Your nonprofit’s office address.
- The registered agent.
- Your board of directors.
- The nonprofit’s purpose.
For nonprofits, the articles of incorporation should also include certain language to ensure you’ll qualify for tax exemption. Some states require you to publish a notice in your local newspaper.
[Read more: Choosing the Right Nonprofit Type: Which Is Right For Your Business?]
Write the bylaws
The bylaws are the rules and procedures for your nonprofit. Even if your state doesn’t require you to have bylaws, it’s a good idea to write them anyway. Well-written bylaws can help you resolve disputes and demonstrate that your organization is managed responsibly.
Here is the information you’ll need to include:
- The name of your nonprofit.
- The nonprofit’s purpose.
- A list of officers.
- The procedures for adding and removing board members.
- Term limits for board members.
- The end of your fiscal year.
You’ll also want to include any other details specific to your organization. For instance, you may want to address how you’ll handle a conflict of interest or outline the compensation policies for board members.
File for tax-exempt status
Once you’ve completed the previous five steps, it’s time to apply for 501(c)(3) tax-exempt status. Most nonprofits will only do this at the federal level, but some states require that you file at the state level too. You should contact your state tax agency to find out what steps you need to take. Note that most nonprofit organizations are required to file Form 1023 or Form 1023-EZ within 27 months from their date of incorporation to apply for tax-exempt status. If your nonprofit has less than $250,000 in assets and less than $50,000 in gross receipts, you can file page three of the 1023-EZ application.
Do nonprofits have to file 501(c)(3) status?
While many people associate nonprofits with 501(c)(3) status, not all nonprofits are required to obtain it.
“Nonprofits are organized for purposes other than generating profit and they don't distribute any income to their shareholders,” wrote LegalZoom. “501(c)(3) refers to a specific tax status in which an organization does not have to pay federal income tax and can accept tax-exempt donations from the public.”
The criteria governing 501(c)(3) organizations are strict, but doing so is worthwhile for those seeking federal tax exemption and the ability to receive tax-deductible donations. There are other types of nonprofit organizations that do not qualify for 501(c)(3) status but still enjoy certain tax benefits or exemptions, such as:
- 501(c)(4): Social welfare organizations.
- 501(c)(6): Business leagues, chambers of commerce.
- Unincorporated associations: These often operate without formal legal status.
If you're considering starting a nonprofit, it's essential to determine which legal structure and tax status best suit your organization's goals and needs.
Jamie Johnson also contributed to this article.
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