Starting a nonprofit is exciting and rewarding, the purpose of any nonprofit organization is generally to improve the quality of life for others at a community, local, state, national, or even global level. These organizations are not dedicated to private or financial gain but to the advancement of public interest.
While starting a nonprofit Charity organization or religious organization is an exciting and rewarding opportunity, it can also be challenging.
A nonprofit organization commonly performs some type of public or community or religious benefit, without the purpose of making a profit. There are various categories of nonprofits recognized by the Internal Revenue Service (IRS):
A nonprofit is an organization that qualifies for tax-exempt status under the regulations outlined by the Internal Revenue Code. Each category has different tax benefits and requirements. While the majority of nonprofits are classified under 501(c)(3) of the IRS Code as charitable organizations.
Types of Nonprofits
Charitable or Religious Organizations
A charitable organization or charity is a non-profit organization whose primary objectives are philanthropy meaning they desire to promote the welfare of others, expressed especially by the generous donation of money to good causes. And social well-being (e.g. charitable, educational, religious, or other activities serving the public interest or common good).
Examples: Charitable Organization:
The exempt purposes set forth in Internal Revenue Code section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.
The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
Social welfare organizations
A social welfare organization is a nonprofit civic organization operated under Internal Revenue Code section 501(c)(4)exclusively for the promotion of social welfare; and. local associations of employees whose earnings are devoted to charitable, educational, or recreational purposes.
Examples: Some nonprofit organizations that qualify as social welfare organizations include:
- An organization operating an airport that serves the general public in an area with no other airport and that is on land owned by a local government, which supervises the airport’s operation,
- A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs and meetings; and contracts with a private security service to patrol the community,
- A community association devoted to preserving the community’s traditions, architecture and appearance by representing it before the local legislature and administrative agencies in zoning, traffic and parking matters,
- An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area and
- An organization that holds an annual festival of regional customs and traditions.
Other Types of non-profits:
- Labor and agricultural organizations
- Business leagues
- Veterans organizations
Why Incorporate a Nonprofit ?
For organizations seeking tax exemption, incorporation is the first step . … The primary reasons for incorporation are limited liability protection of the directors, credibility, and tax purposes.
Forming a nonprofit corporation, a legal entity, is different from federal or state tax exemption. Incorporating a non-profit is similar to creating a regular corporation except that you have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division.
How to Incorporate a Nonprofit:
- Choose a business name:
Check the state-by-state information on the various laws that apply to name a nonprofit in your state.
- Appoint a Board of Directors:
Draft your bylaws with guidance from your Board of Directors. These are the operating rules for your nonprofit.
- Decide on a legal structure:
Choose whether your organization will be a:
In general, a trust is a relationship in which one person holds title to the property, subject to an obligation to keep or use the property for the benefit of another. A trust is formed under state law. You may wish to consult the law of the state in which the organization is organized. Note that for a trust to qualify under section 501(c)(3) of the Code, its organizing document must contain certain language. Publication 557 contains suggested language.
In general, a corporation is formed under state law by the filing of articles of incorporation with the state. The state must generally date-stamp the articles before they are effective. You may wish to consult the law of the state in which the organization is incorporated. Note that for a corporation to qualify under section 501(c)(3) of the Code, its charter or articles of incorporation must contain certain language. Publication 557 contains suggested language.
In general, an association is a group of persons banded together for a specific purpose. To qualify under section 501(a) of the Code, the association must have a written document, such as articles of association, showing its creation. At least two persons must sign the document, which must be dated. The definition of an association can vary under state law. You may wish to consult the law of the state in which the organization is organized. Note that for an association to qualify under section 501(c)(3) of the Code, its articles of association must contain certain language. Publication 557 contains suggested language.
- File your incorporation paperwork:
You must next file formal paperwork or articles of incorporation, and pay a small filing fee to your state. State law may require charitable organizations to register and file periodic reports.
- Apply for tax-exempt status:
A nonprofit organization may be eligible for exemption from federal income tax to determine your eligibility you must Apply for Section 501(c)(3) Status.
- Obtain necessary licenses and permits:
Check with your state, federal and local authorities for the nonprofit licenses and permits needed to comply with federal, state, and local rules?