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What You Should Know About Starting a 501(c)(3)

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The IRS has dozens of 501 classifications for various nonprofit entities, so it's important to know which one best fits your goals. The most common type of nonprofit is a 501(c)(3), which is a charitable organization. These organizations are traditional charities that serve religious, educational, environmental, and humanitarian interests. Here is more information on how 501(c)(3)s are different than other 501 nonprofits as well as some of the basic steps needed to create this type of organization.

Know the Difference Between a 501(c)(3) and Other Nonprofits

One of the major differences between a 501(c)(3) nonprofit and most other nonprofits is that donations to this type of organization are tax deductible. Only a few other 501 nonprofits are allowed to do this, including cemetery companies, certain fraternal organizations, and federally created 501(c)(1) nonprofits. 501(c)(3) nonprofits also have a different structure and bookkeeping procedures from other nonprofits.

Begin Preparing for Your 501(c)(3)

You need to start planning early to set up your 501(c)(3). Before setting up your nonprofit, you should do your research and begin to organize people around your cause. Here are some specific steps you need to take before you make your nonprofit tax exempt.

Choose Your Name

When you are choosing a name for your 501(c)(3), keep in mind that you can't just choose any name you want. Your nonprofit must not have the same name as any other organization. The type of organization - such as corporation, association, or limited liability company - should be listed at the end of the name.

Organize Your Board of Directors

You must have a board of directors to direct and oversee your financial operations as well the rules of your nonprofit. The number of directors you need depends on your state's laws. Some states only require one director while other states require three or more.

Write Your Bylaws

Once you have your board of directors in place, hold your first meeting and write your bylaws. Establish the ground rules of the organization as well as how the rules governing the board as well as policies for raising money.

Apply for Incorporation

This is the process of filing paperwork to make your 501(c)(3) official. You should take great care with forming your articles of incorporation and be precise with what you put on those forms. Your state may have a nonprofit formation kit online which could tell you what kind of information is needed.

Apply for Tax Exemptions

After you've organized your nonprofit and have filled out and filed your articles of incorporation, then you can apply for both federal and state tax-exemption status. The information and forms for this application can be found on both the IRS and your state's tax websites. In some states, you will have to get your tax exemption from the federal government first before you can apply for a state exemption.

Obtain the Proper Licenses

Once you have received your tax-exempt status and have all the paperwork done, you will need to apply for any local licenses and permits that you need in order to operate. If you sell things, then you may need a license to collect sales tax. Some cities or counties may also have zoning laws that you have to follow. There may also be vehicle fees, fish and wildlife permits, and broadcasting licenses among others.

Starting a 501(c)(3) is just the beginning. Once you have everything organized and running, there are still things you must do to keep your charity status. This includes keeping up with fundraising and bookkeeping procedures as well as specific rules on expenditures. Since the fine print to all these rules and procedures can be complicated, it's important to work with specialists like us at the Non Profit Assistance Corp who work with nonprofits. Call us with your ideas before you begin going through the process of setting up a 501(c)(3) for expert advice on how to proceed.


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