TIS THE SEASON – A TIME OF GIVING
WANT TO START A TAX EXEMPT NON-PROFIT ORGANIZATION…where do you begin?
Christmas is almost here; a time for giving thanks for all we have and remembering those in need. There are those among us who have fallen on bad times, whether it’s from the economy, illness, troubled pasts, or just need a little help now and then. So you decide you have a pet project or have a worthwhile need and want to set up a Non-Profit organization to fulfill that need but don’t know where to begin. Let’s see if I can narrow it down for you and make the process a little simpler. These are the steps that need to be taken to set up a tax exempt organization:
- Define Purpose of Organization
- Incorporate
- Obtain Federal ID Number
- Open Bank Account
- Apply for Tax Exempt Status
Defining the purpose is the most integral part of setting up a tax exempt organization. A definitive purpose is needed in order to clearly explain what the donations are to be used for.
The question is often asked ‘Is it necessary for to incorporate a Non-Profit organization?’ The answer is yes. Simply setting up a bank account and collecting money does not make you tax exempt and does not allow the donors to deduct the donation on their tax return. You must incorporate as a Non-Profit organization with your state. As a side note, it is fine to remain a regular C Corporation; electing S Corporation status is unnecessary as there is typically no taxable income to worry about.
After incorporating and receiving the Articles of Incorporation, you need to apply for a Federal ID number with the IRS.
The next step is to open a separate bank account for the organization and make sure no other personal or business funds are intermingled with this account.
The final step is to apply for tax exempt status. Form 1023 must be filled out and filed with the IRS. This is the application needed to be filed to obtain approval for tax exempt status as a 501(c)(3) organization. This form needs to be filed within 27 months of forming a Non-Profit Corporation. It is advisable to seek professional help when filling out the Form 1023. Activity can continue while waiting for approval from the IRS. The tax exempt approval will be retroactive to date of incorporation in most cases.
Although records and financials should be kept for all Non-Profit Corporations, a Form 990 tax return is only required to be filed if donations total more than $50,000 for the year. Otherwise Form 990-N Electronic Postcard can be used.
I hope this helps those that are willing to help others.
So during this holiday season, let’s think of those who are less fortunate than we are and give thanks for what we have. And remember not to eat too much! Happy Holidays!
