How to Start a Nonprofit, Demystified

A simple guide to starting a nonprofit organization.

If you are passionate about helping or serving others in your community, you might consider starting a nonprofit.

What is a Nonprofit Organization?

A nonprofit organization (NPO), also known as a not-for-profit organization, is an entity that has been granted tax-exempt status by the Internal Revenue Service (IRS). Nonprofits receive this status because they advance a social cause and provide a public benefit. NPOs use their revenues to further their objective, rather than distributing their profits and income to the organization’s shareholders, leaders, or members.

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9 Steps to Starting a Nonprofit Organization

Step 1: Choose your niche

It is important to know what services are already available in your community. You should be sure your efforts aren’t duplicating those of someone else. What kind of service or assistance will you provide to the community? What kind of issue will you be focusing on and trying to solve?

Step 2: Register the name of your nonprofit

Before committing to a name for your organization, do a search to see if the name you want is available. You can do this through your Secretary of State’s office. If the name is available, register with them at a cost of approximately $25. Registering the name of your NPO will reserve the name until you file your articles of incorporation.

Step 3: Appoint your board of directors

Having a board of directors is a requirement for starting a nonprofit. You will need to list their names and addresses when you file for incorporation and your tax-exempt status. Your board will also help you create your bylaws. Remember, you cannot pay board members for their services. Furthermore, they should have the experience and expertise to meet your operational needs.

Step 4: Create your bylaws

The bylaws are a legal agreement between the organization and its board members. The bylaws state how your nonprofit will conduct business and make decisions.

Step 5: Get an EIN

Even if you don’t have employees, your organization must have its own federal employer identification number (EIN) to apply for tax-exempt status. You can apply for an EIN online by using the IRS’s EIN Online Assistant. There is no charge to have an EIN issued or to use the system.

Step 6: Filing your articles of incorporation

To receive federal tax-exempt status, your organization must be a corporation or a state-registered unincorporated association. Your articles of incorporation are filed with your state office. Each state may have slightly different requirements and the cost to file your articles can range from $100 to $250.

Step 7: Applying for your Tax-Exempt Status

Typically you must either fill out Form 1023 or Form 1023-EZ to apply for tax-exempt status. You fill out a 1023-EZ if you’re a small organization receiving less than $50,000 a year and with assets of $250,000 or less. The cost to file Form 1023 is $600, while Form 1023-EZ costs $275.

Step 8: Apply for state and local tax exemptions

Once the IRS has approved your organization’s tax-exempt status, you can apply to be recognized by state and local authorities as well.

Step 9: Find funding opportunities

Nonprofits rely heavily on donations. However, grant funding is also available to support programs, projects, and services operated by nonprofits. GrantWatch.com is the leading grant listing directory, with more than 5,000 grants available to nonprofits.

Free grant resources are available online to help with grant applications. We recommend viewing the sample grants, glossary of funding terms, and online support to get started!

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