Step One: Research and Discovery
Before you begin, take time to research the need you will address, identify personal motivations and goals, define how you plan to measure success, and investigate opportunities to work with existing organizations as an alternative to creating a new one. For most founders, this first step occurs naturally and without much structure over a period of weeks or months leading up to your decision to start.
Step Two: Concept Development
Abraham Lincoln famously said, “Give me six hours to chop down a tree and I will spend the first four sharpening the ax.” In other words, preparation is important! Whether you create a traditional business plan or use the notes app on your phone, you should be able to articulate your mission, vision, values, and a summary of your planned activities that includes programs, timeline, staffing needs, and funding sources. Be sure to share your plan with potential board members and advisors and ask for feedback.
Step Three: Formation and Organizational Process
Now is the time to decide whether to hire professional help to assist with the formation of your nonprofit organization. Companies like Nonprofit Elite – 800-268-4388 can step in at this point to make sure that your formation and 501(c) application process occurs without mistakes, misunderstandings, or costly do-overs. If you choose to continue on your own, here’s a list of tasks to keep you on target:
- Build an initial board of directors of at least three people. Yes, the founder of the organization can serve on the board. No, all three directors can not be related.
- Research and reserve your name with the Secretary of State and a domain service.
- Establish a business mailing address and other pertinent contact information such as email, phone, website, etc.
- Prepare Articles of Incorporation and file with your Secretary/Department of State. Please note that Articles of Incorporation MUST INCLUDE the IRS-required purpose and dissolution language if you will apply for 501c3 tax exempt status. Most state forms do NOT include this language.
- Obtain an EIN – Federal Employee Identification Number (Tax ID Number) from the IRS.
- Draft organization’s Bylaws that establish governing rules and regulations.
- Open bank account and establish check-writing procedures.
- Hold initial board meeting and designate officers – President, Secretary, and Treasurer.
Step Four: Apply for 501(c) Tax Exemption
Obtaining 501(c) tax-exempt status from the IRS is not as difficult as most want you to believe, but you do need to know what you’re doing. This is the most critical step in the startup process, and a mistake at this point will cost you significant time, frustration, and money.
- Prepare and file IRS Form 1023, IRS Form 1023-EZ, or IRS Form 1024 – Application for Recognition of Exemption, along with additional notes, attachments, schedules, and IRS User Fee. See IRS Form 1023 for more info.
- Respond promptly to IRS Letter of Inquiry with additional information prior to receiving federal tax-exempt status as 501(c) organization.
Step Five: State and Local Applications/Licensing
Most local governments have registration and licensing requirements that are not always easy to find. Check with your local department of state, county office or Tax Assessor to make inquiries.
- Register to solicit contributions in your city, county, and state as required.
- File with your state for sales tax and franchise tax exemption.
- Inquire about additional city, county and state licenses or registrations required to carry out your organization’s planned activities.
Step Six: Internal Processes & Systems
Once the paperwork is behind you, it’s time to focus on your internal processes and systems. Take advantage of your board of directors, volunteer advisors, and resource groups like your local nonprofit resource center to set up systems that are simple and scalable.
- Set up operating procedures, adopt accounting and payroll systems.
- Review insurance needs and secure adequate coverage.
- Create compliance calendar to ensure timely filing of all periodic and annual reports at the local, state, and federal levels, including annual IRS Form 990, 90-N, or 990-PF.
- Develop job descriptions along with system to evaluate, improve, and report on program results and effectiveness – a critical tool for management, marketing, and fundraising efforts.
- Provide donation receipts to comply with IRS requirements.
Estimated Fees for Incorporation as a Tax Exempt Nonprofit Organization
Below is a list of fees required by the state and the IRS to form a nonprofit corporation and apply for federal tax-exempt status as a 501(c) organization. For a more detailed explanation of the costs associated with starting a nonprofit organization, click here.
- Name Reservation with Secretary of State and Domain Reservation Service: $25-100
- Articles of Incorporation: $25-150
- IRS Form 1023 Application for Tax Exemption: $275-$600
- Register with each state’s Charitable Solicitations Division where you plan to engage in fundraising activities: $50-$200
Of course, we believe that your best option for a quick and efficient startup is to partner with Nonprofit Elite. We’ll take on full responsibility for the approval of your formation documents and your 501(c)3 application (IRS Form 1023), and our fees are always affordable. We provide startup consultation and document preparation hand-in-hand, so that you understand exactly what’s happening every step of the way. Most important is the peace-of-mind we provide, backed by our 100% approval rate with the IRS and full money-back guarantee. Contact Nonprofit Elite (800-268-4388) today to get started.