TAX EXEMPT NON-PROFIT CORPORATION
If you’ve ever wanted to raise money for a cause, you might want to start a 501(c)(3). This following blog will help you think on what you need before you decide to pursue being a non-profit and how to get started.
The best reason to form a 501(c)(3) nonprofit corporation is because you’ve determined that it is the most effective way for you to go for a charitable organization. One important thing to think about is if you have time to take care of this organization full time or if your charity work can be done by simply donating time and money to an already existing organization.
If you decide to become a non-profit corporation try to work to be recognizable to get people interested in donating to your charity and you can let them know that their donations are tax deductible. Also, obtaining 501(c)(3) status means that potential donors are more likely to see your organization as legitimate. Much of the financial and operating information that 501(c)(3)s are required to report to the IRS becomes public record, so these organizations can easily be scrutinized and held accountable if donors think their funds are being misused. If the IRS gives you the approval to be a non-profit, your organization won’t pay income tax on the money it earns from its fundraising activities and the donations you receive. Additionally, when you incorporate your organization, this helps you protect your personal assets.
Here are some basic steps that will make your nonprofit a tax-exempt business:
The IRS says that if you want to operate as a 501(c)(3), your organization must be catering to the following industries: Religious, charitable, scientific, literary or educational, testing for public safety, fostering national or international amateur sports competition, preventing cruelty to children or animals.
Please make sure that your organization is not designed to profit an individual and that it provides a public benefit.
Form a Corporation
If your organization meets the IRS requirements, decide if you want help and hire an accountant. An accountant can provide personalized guidance and help you avoid costly mistakes, but some people do manage on their own. Also, corporations are formed at the state level, so you’ll need to find out what the procedure is to form a corporation in the state where your organization will be based: Name the corporation, prepare and file articles of incorporation, appoint one to three directors depending on needs and state requirements, start a record book, get state tax identification number, and make a business plan.
File Paperwork with the IRS
After meeting your state’s requirements for forming a corporation, you’re ready to apply for tax-exempt status with the IRS: Apply for an employer identification number (EIN), complete and submit Form 1023 (depending on organization you are forming may need to attach Schedule A for churches; Schedule B for schools, colleges and universities; etc.), submit your application, wait for IRS to issue a determination letter either granting or denying tax-exempt status to your organization. The evaluation process usually takes three to five months.
Comply with State and Local Requirements
If your organization gets approved for tax-exempt status at the federal level, you’ll need to make sure your organization will also be tax-exempt at the state and local levels so it doesn’t have to pay state corporate income tax, sales tax or property tax. Requirements vary by state. Once you’ve met your state’s requirements for operating as a nonprofit, you’ll need to get any permits or licenses required to operate your business and make sure to comply with building codes and other local regulations. Being a nonprofit only exempts you from taxes; it does not exempt you from meeting the other requirements for your business type in the area where you will operate. Also, get familiar with corporate requirements, such as holding meetings, keeping minutes and filing information returns.
Maintain Your Status
Once you’ve been approved at every level maintaining your nonprofit status is an ongoing process, and the consequences are severe if you don’t follow the rules.
By UNIKO Media Group