Nonprofit organizations help their community, whether it is locally, nationally, or globally. As such, nonprofit organizations typically have an educational, scientific, religious, or charitable purpose. They are given tax advantages because they provide valuable services and assistance to people.
Often, nonprofit associations are called 501(c)(3) organizations because the Internal Revenue Service (IRS) designates tax-exempt status for charitable organizations under this section of the tax code. Additionally, nonprofit organizations are incorporated under state laws to establish legal protections for the leaders of the nonprofit which separate their personal assets from the assets of the company.
What Are Some Benefits of Nonprofit Organization?
An organization incorporated and given 501(c)(3) tax-exempt status enjoys these benefits:
- Perpetual existence, even if there is a change in leadership
- Personal asset protection for directors and officers
- The ability to receive grant funding from private and public sources
- The ability to accept tax-deductible donations
- Tax exemption from federal income tax as a charitable organization
- Possible exemption from property taxes.
What Are The Steps To Forming A Nonprofit Corporation?
- Choose the purpose of the nonprofit and the population it will serve
- Pick a name for the nonprofit
- File Articles of Incorporation with the Secretary of State where your nonprofit will be located
- Apply for IRS tax exemption
- Apply for state tax exemption
- Draft Bylaws
- Appoint Directors for the Board of the Nonprofit
- Hold a meeting of the Board and approve the Bylaws
- Obtain any necessary licenses and permits
Where Should My Nonprofit Be Incorporated?
While for-profit corporations are often formed in states where they are not primarily located to take advantage of beneficial state laws and tax codes, this is generally not a concern for nonprofit corporations due to IRS requirements for tax-exempt status.
A nonprofit should incorporate in its home state to save money and resources, especially if they only plan to operate in that state. Nonprofits must register, file annual reports, and pay fees in every state in which they operate.
What if A Nonprofit Does Not Apply For Tax-Exempt Status?
Nonprofit organizations are not required to apply for tax-exempt status. However, nonprofits who do not apply for 501(c)(3) status cannot get grant funding, and any money flowing into the organization is taxed. Additionally, the nonprofit might miss out on donations to help with their cause because donors cannot deduct gifts to the organization from their taxes.
Additional Questions?
We look forward to discussing starting your nonprofit with you! Let us know how we can help you help others!
