How to start a nonprofit

1. Form the organization under your state's law, usually as a nonprofit corporation.
2. Get an EIN from the IRS once the organization is legally formed.
3. Apply to the IRS for 501(c)(3) status on Form 1023 or Form 1023-EZ.
4. Register with your state before asking for donations, if your state requires it.
5. Keep donor and gift records from the first contribution.
6. File the IRS annual return every year, and any annual filing your state requires.

A nonprofit starts under state law. Most charities incorporate as a nonprofit corporation by filing articles of incorporation with their state, and state law also sets the rules for the board of directors and the bylaws.

For 501(c)(3) status, the IRS requires two clauses in the articles. A purpose clause limits the organization to the purposes in section 501(c)(3). A dissolution clause permanently dedicates its assets to those purposes if it ever dissolves. Some states' laws supply the dissolution clause, though the IRS notes that an application may be reviewed more easily when the articles include one. IRS Publication 557 has sample articles in its appendix.

A private foundation needs more. Its articles must require it to distribute its income each year, so it isn't taxed on undistributed income (section 4942). They must also bar it from self-dealing, keeping excess business holdings, making investments that jeopardize its charitable purposes, and making taxable expenditures (sections 4941 and 4943 to 4945). Publication 557 has sample wording under “Governing instrument” in chapter 3. Most states have laws that supply these provisions, but the IRS withdrew their list of those states in Rev. Rul. 2024-10 (PDF), so a foundation that relies on state law has to check its own state's law.

The IRS asks you not to apply for an Employer Identification Number (EIN) until the organization is legally formed. Applying also starts a clock: an organization that doesn't file a required annual return for three years in a row loses its tax-exempt status automatically, and the IRS counts those years from your EIN application.

There's no fee, and you can apply online, by fax or by mail. The IRS EIN page for exempt organizations explains how.

A 501(c)(3) organization applies to the IRS on Form 1023, or on the shorter Form 1023-EZ if it's eligible. Both are filed electronically on Pay.gov. The user fee is $600 for Form 1023 and $275 for Form 1023-EZ, and the IRS says the fees can change.

Whether you can use Form 1023-EZ depends on the eligibility worksheet in its instructions. Among other limits, you can't if you expect gross receipts over $50,000 in any of the next three years or have more than $250,000 in assets, and an LLC can't use it at all. Organizations that aren't eligible file Form 1023.

If you apply within 27 months after the end of the month you were formed and the IRS approves, your exemption runs from your formation date. Approval comes as a determination letter. The IRS page on applying for tax-exempt status links to both forms and their instructions.

Many states require a charity to register before it asks their residents for donations, often with the attorney general's office. Check the rules in each state where you plan to ask.

A state tax exemption is a separate application, and the rules for it vary by state too.

Keep a record of every gift from the first one. A donor needs a written acknowledgment from your charity to deduct any single contribution of $250 or more. It names your organization, gives the cash amount or describes non-cash property without valuing it, and says whether you gave anything in return, with a good-faith estimate of its value.

The annual return draws on the same records. Form 990, 990-EZ and 990-PF filers generally list contributors of $5,000 or more on Schedule B, and a public charity shows its public support on Schedule A using five years of support figures.

Little Green Light

Online donor management software for nonprofits. It keeps a record of every donor and gift, which you need for thank-you letters and for your annual return.

Your organization gets a credit from Little Green Light if it signs up through our link or enters referral code fastfileexempt, under the terms of their referral program.

Little Green Light may also pay us a referral credit when you use our link or code.

Visit Little Green Light

The annual return is due even while your application is pending. An organization that claims tax-exempt status files it whether or not the IRS has decided, and on Form 990 or 990-EZ it checks “Application pending”.

Which return depends on size. Form 990-N is for gross receipts normally $50,000 or less. Form 990-EZ is for gross receipts under $200,000 and total assets under $500,000. Larger organizations file Form 990, and a private foundation files Form 990-PF. The public charity guide has the details.

Each return is due on the 15th day of the 5th month after the tax year ends, May 15 for a calendar year. Missing three years in a row ends tax-exempt status automatically.

Your state may expect an annual filing too. California, for example, has exempt organizations file Form 199 with the Franchise Tax Board each year, or the shorter Form 199N if their gross receipts are normally $50,000 or less. Many states also have registered charities renew their registration every year, and nonprofit corporations file an annual report. We don't file state returns.

We e-file Forms 990-N, 990-EZ, 990, 990-PF and 8868 that your organization has prepared, and Form 990-N is free. Sign-up checks your EIN against the IRS Exempt Organizations Master File, which lists the organizations the IRS recognizes as tax-exempt. If yours isn't on it yet, for example while your application is pending, email support@fast-file-exempt.com and we can set up your account.