How to Start a Nonprofit Organization

A nonprofit organization is one that is deemed non-profit by the Internal Revenue Service. Nonprofits help promote a cause and can provide a benefit to society in a variety of ways. If you’ve wanted to know how to start a nonprofit organization, the following steps should help you get started.

First Steps of How to Start a Nonprofit Organization

Determine the Name of Your Nonprofit Organization

Deciding on a name for your nonprofit may be the easiest part of the process, consider who or what your organization is benefitting and determine what you’ll call it. Having the name of the nonprofit laid out beforehand as well as a general scope of what the purpose of the organization is, will better help you move through the additional start-up stages.

Register Your Nonprofit with the State

If it applies in your particular state, the next step in how to start a nonprofit is to register your organization,  is to contact the Secretary of State where you reside. To find your specific Secretary of State office, visit The Balance Small Business website for a direct link. The Secretary of State will assist you in filing the documents needed (if applicable) to move on to the next step.

Obtain a Federal ID Number

Next, you’ll want to get an Employee Identification Number (EIN). To do this, contact the IRS either by phone or online. A Nonprofit Employer Identification Number is a number the IRS generates to nonprofits, organizations, businesses, or charities. The IRS uses the EIN number to identify taxpayers who are required to file business tax returns, including nonprofits. Nonprofit organizations that are tax-exempt must file an Information Return 990 yearly.

Name Your Board of Directors

Before you can apply for tax-exempt status and file your Form 1023 to obtain a 501C3, you’ll need to name your board of directors. To do this, once you have your corporation set up, you’ll need to draft up Meeting Minutes as the incorporation that illustrates you’re signing over ownership to the board so the board can make decisions on behalf of the corporation. This gives the board control over what happens with the eventual nonprofit. With your board members, you’ll need to have a meeting to ensure everyone agrees and signs the documentation.

Name your officers to include a board president, treasurer, and directors. The meeting will also be where you write and agree to bylaws. You’ll also create documentation that explains how the eventual nonprofit will be run. Be sure to include what matters will need to be voted on. Lay out the details of voting and how decisions for the nonprofit will be made.

Note: It’s also a good idea to consult with an attorney at every step of the process to ensure you’re doing all of the right things and following the requirements for your particular state. 

Secondary Steps on How to Start a Nonprofit

Submit Documentation to the IRS

With all of the governing bylaws in order and the board of directors named, now is the time to submit your nonprofit application to the IRS. Visit the IRS website for instructions and a checklist on how to file a Form 1023. Tax-exempt status means that your organization is exempt from paying taxes on its net income. The exemption does not apply to other taxes like property tax or sales tax. It also means that any donations made to your organization by other individuals are tax-deductible for them. Donors will be able to write-off the donations on their own taxes.

You will likely have to include the information from your board meeting like the policies,  members, and bylaws in your application. It may also be a good idea to include additional verbiage. This can explain who is responsible for the finances. It can also name who is allowed to open bank accounts for the entity. This will alleviate any confusion when the time comes to open an account.

Tax Exemption Status Approval

Upon approval of your tax-exemption status from the IRS, you’ll receive a Tax Determination Letter. This is your approval from the IRS. From here, depending on where you live, you’ll need to head back to your state officials to begin the process of being approved for tax-exemption status on the state level. This application and its requirements vary, so be sure you have the proper information for your individual state. You may also need to obtain a business license so consult with your state attorney general as requirements vary in that regard as well. The National Association of Attorneys General is the ideal place to start to find the AG where you live.

Open a Bank Account for Your Nonprofit Organization

The final step in how to start a nonprofit before you begin raising funds for your organization is to open a bank account. Congratulations, it was a long and arduous process. Finally, though, you’ll be able to start collecting funds for your passion project. Opening a bank account may require you to submit documentation from both the state or federal level. You may also need to include your bylaws or other documentation. Contact your bank for specifics. This will help make the process easier and more streamlined.

If you’ve wondered how to start a nonprofit, the above-mentioned steps are a great starting point. They should help you understand the process. It is not meant to be an exhaustive step-by-step. It does, however, give a general outline. This should help familiarize you with the key terms and guidelines you may likely need to follow. Each state is different and requirements and processes vary. As such, it’s important to research the steps for your particular state. It may be advantageous to contact an attorney and/or CPA. They can offer more specific legal and tax advice. They can also help answer any questions you may have about the nonprofit organization you wish to start.