10 Things to Do for a 501(c)(3) Tax Exemption
In one of our perennially popular Free Enterprise posts we ran down a to-do list for starting a nonprofit.
Now, let's take it one step further and talk about what
you need to do if you want to have a smooth ride through the IRS nonprofit tax
Here's a simple checklist so be sure to click on the links throughout the
post for more detailed information.
- Research and reserve
a name. Be sure that the name you want is
available. Also check your state's nonprofit corporation laws to make sure that
you can use the name in connection with a nonprofit. Nonprofit
tip: In California, you can't use the name "trust" in connection with a
- Choose your board
of directors. Your board will vote on issues affecting the
nonprofit. The IRS will likely want their names and qualifications, so make sure
you have a well selected board. Nonprofit tip: Try not to choose too many
related members for your board.
- File your formation documents. If you plan to get tax
for incorporation. You don't have to do this by law, but it makes your life
easier before the IRS. Nonprofit tip: LLCs result in a lot more
questions during the IRS tax-exemption process.
- Create your nonprofit bylaws. These are important documents
because the IRS will ask you for them. Play close attention to the conflict
of interest clause and any compensation clauses.
- Get your EIN. You
can't file for tax exemption without your Employer Identification Number. So
apply online to get your EIN. The process takes half an hour or less.
- File for Federal tax
exemption. In order to file for tax exemption,
your nonprofit will have to file the Form 1023 with the IRS. This is a very
large form, complete with supplemental narratives, so plan your time
- File for State
tax exemption. Each state has a different set of
criteria for tax exemption. Check with your state's taxing authority to see what
you might need to file.
- Register with your State for Fundraising and Solicitation.
If you plan to solicit funds for your nonprofit, you might have to register with
the Attorney General or Secretary of State. There is also a Uniform Registration Statement for
- Get Insurance. This isn't a hard and fast requirement, but
it might shield your board members from potential liability down the line. Look
- Get local business licenses and/pr permits. Depending on
the type of nonprofit you plan to run, you might be required to get some zoning
clearance from the local authorities. This might be the case if you plan to own
real estate which you plan to use for nonprofit activities.