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Starting a Nonprofit Organization Checklist

Starting a nonprofit organization can be a rewarding way to give back to your community. Nonprofits, unlike for-profit businesses, focus on achieving a mission. Nonprofits can have a charitable, educational, or religious mission. They can also focus on scientific and literary causes.

This article is your go-to guide, offering a step-by-step guide for budding entrepreneurs eager to make a difference. By following this checklist, you can successfully launch and run a nonprofit.

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Why Create a Nonprofit Corporation?

Nonprofits address important issues and needs that are often overlooked. By starting a nonprofit, you're not just a business owner. You're an advocate for a cause, too. Unlike shareholders in a for-profit business, you're not in it for personal gain. Instead, you're driven by a mission to improve society. Plus, nonprofits can engage in fundraising, receive charitable donations, and even influence public policy through limited lobbying.

Why do people create nonprofits? Often it is because they have the drive to make a difference for a cause that is close to their hearts or has affected them personally in some way. Simply put, nonprofits handle the hard issues and make the world a better place.

Many nonprofits are organized as corporations. By incorporating, you can ensure that your personal assets and those of other members are protected from the debts and liabilities of the organization.

Tax Benefits of a Nonprofit Corporation

One of the biggest perks of a nonprofit is its tax-exempt status. Because the mission of a nonprofit is to work toward the public good, the organization is usually eligible for federal and state tax benefits not available to for-profit organizations. Under the Internal Revenue Code, specifically section 501(c)(3), qualified charitable organizations don't pay federal income tax. This means more of your fundraising efforts go directly to your cause.

Additionally, people who make charitable contributions to your organization may receive a tax credit or write-off. These apply to people who donate money, goods, or services to the organization. This can help reduce their tax liability. However, be aware of rules around unrelated business income and ensure your activities align with tax law.

Applying for 501 (c) (3) Status

One of the basic steps to forming a nonprofit corporation is filing for the correct tax status. The application process to claim 501(c)(3) tax-exempt status begins with determining if the Internal Revenue Service (IRS) deems your organization eligible for this tax exemption.

This process involves submitting a detailed application, including information about your organization's purpose, governance, and financial structure. The application process is not finished until the IRS Form 1023 application for recognition of exemption is completed and submitted to the IRS.

Understand that this process can be complex and might require professional advice. Meeting these criteria sets you apart from for-profit entities and makes your organization eligible for certain tax benefits.

Nonprofit Checklist

The following is a step-by-step guide to forming your nonprofit. Keep in mind that your nonprofit's startup requirements might vary from the list below, depending on the specific type of business you are in and where your business is located.

  1. Define your mission: Clarify what your nonprofit organization will achieve. Write a mission statement for your nonprofit organization.
  2. Conduct some research: Understand the needs in your area and check if other organizations are addressing them.
  3. Create a business plan: Outline how your nonprofit will operate and sustain itself.
  4. Choose a business name: Select a unique name that reflects your mission. Keep in mind that your state may require that your nonprofit corporation's name include an identifying word such as "incorporated," "limited," "corporation," or an abbreviation of such a term.
  5. Search the availability of your business name: Look for similarly existing names, too. This can cause confusion later on, so it's best to steer clear of existing similar names.
  6. Register your nonprofit's name: You can do this with the secretary of state's office in your state.
  7. Incorporate your nonprofit organization: Decide where to incorporate your nonprofit. File paperwork, such as your articles of incorporation, with your state to create a legal entity. Pay any related fees. This offers limited liability protection.
  8. Apply for tax-exempt status: Submit Form 1023 to the IRS for 501(c)(3) recognition. You may be able to receive a tax exemption from the local, state, and federal governments.
  9. Set up your board of directors: Recruit a diverse and skilled board of directors who can guide your organization. This board might also be called a nonprofit board.
  10. Create your nonprofit corporation's bylaws: Draft and adopt bylaws for your nonprofit corporation. These bylaws will serve as the rules of your nonprofit corporation.
  11. Obtain business licenses and permits: You can do this from the:
  12. Open a separate bank account: Separate your personal and business finances. You can begin raising funds and acknowledging donations for their charitable contributions.
  13. Comply with state and federal laws: Understand requirements for property tax, business tax, and annual reporting.​ You may have to register with your state attorney general's office as well.
  14. Create a website and social media presence: Promote your cause and engage with supporters digitally.

Get Help With Incorporating Your Nonprofit

Incorporating can be a benefit to your new nonprofit organization in the long run and help protect your personal assets, but the incorporation process can be complicated.

To ensure that your new nonprofit complies with your state's rules for incorporation, you may wish to use a reputable DIY nonprofit business formation service or consult an experienced local small business attorney before becoming a part of the nonprofit community.

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