starting a nonprofit

ESTABLISHING A NONPROFIT

ORGANIZATION

WITH TAX EXEMPT ELIGIBILITY

An Overview

Starting a

Nonprofit Organization

Nonprofit Formation Overview

I. NPO Formation Overview

II. Board Establishment

III. Legal Formation

IV. Application for Federal Tax

Exemption

V. State-level Compliance

VI. Annual Reporting

VII. CharityNet USA Services &

Processes

Points to Consider

What is involved in legal formation?

What resources are available?

Where will the organization be located?

Will it qualify for tax exemption?

What are the reporting requirements?

Establishing a Nonprofit:

Step by Step

1. Establish a Board of Directors.

2. File Articles of Incorporation with the state.

3. Make sure the organization is registered in each

state in which funds will be solicited.

4. Become recognized as a 501(c)(3) organization.

5. Obtain exemption from state income and sales

taxes, if possible.

6. Maintain compliance with annual filings.

Board Establishment





Exemption




Processes

Why a Board of Directors?

There must be some protection built into the

system so the government can feel that the

public purposes of a nonprofit are being

carried out.

It requires that a group of individuals act as

guardians of the public trust-that have the

public’s interest at heart.

An effective board can make it possible for the

management, staff, and volunteers to focus

upon the day-to-day tasks of making that

mission a reality.

Board Responsibilities

The Board is Responsible for:

Legally and financially the conduct of the

nonprofit organization

Defining the organization’s mission,

goals, and objectives

Public accountability and creation of

public value

Board Activities

The Activities of a Board Include:Creates mission statement and reviews it

periodically

Makes policies (Drafting AOI, Bylaws, Conflict of Interest Policy, Trustee Manual)

Selects, evaluates, and terminates the chief executive

Appoints committees for different purposes

Enhances nonprofit’s public reputation

More Board Activities

Additional Activities Include:

Manages the organizations funds

Assists in developing annual budget

Makes personal financial contributions

Assesses its own performance

Engages in long term strategic planning

What Board Members Do NOT

Do

Board Members DO NOT:

Become involved in day to day operations of

the organization

Hold owner’s equity in any organization

assets

Receive compensation or salary for their

Board duties

IRS Board Guidelines for

501(c)(3)

Must have a minimum of

3 members on the Board

of Directors

Must have a minimum of

51% that are strictly

volunteer

Must have 51%

unrelated in family or

business

Board Indemnification

Most organizations indemnify their

Board members, meaning that in

most cases they cannot be held

individually responsible for legal

action against the organization.

However, if a trustee shows

negligence in financial matters they

can and will be held personally liable.

Legal Formation





Exemption




Processes

Where Will the Organization

Be Located?

The organization should be incorporated

and headquartered near your planned

area of operations.

Keep in mind a Registered Agent must

have a physical address in the state

where the business is incorporated.

Choosing an Organization

Name

Choose a name that is marketable,

unique, and describes what the

organization will do, or will aspire to relate.

Avoid naming the organization after an

individual, in most cases.

Develop a mission statement relating to

the organization’s name and planned

activities.

Incorporation

To become a legally established nonprofit

corporation, the organization must file

Articles of Incorporation with their state.

This is the governing document that

establishes the purpose of the

organization, and puts limits on the

activities the organization may undertake.

Incorporation

Specific information required by the

IRS must be included if the

organization wishes to apply for tax

exemption.

The format of this document will vary

by state.

EIN #

During the incorporation timeline, the

organization should also request an Employer

Identification Number from the IRS (tax id#).

This number is a unique identification number

for the business, such as the social security

number is for individuals.

Once the organization has been granted tax

exempt status, the IRS simply updates their

records to note that this # belongs to an

exempt entity.

Application for

Federal Tax Exemption





Exemption




Processes

Why 501(c)(3)?

A common next step is to request

determination under IRC 501(c)(3)

Many types of nonprofit organizations may

qualify for exemption from federal income taxes,

however that exemption is not automatic.

Applications must be filed with the Internal

Revenue Service requesting the privilege of tax

exemption for the organization.

501(c)(3) Benefits

501(c)(3) Organizations:

Do not pay federal corporate income tax. With this exemption, an organization can save 15-35% of its taxable income.

In most cases do not pay state corporate, franchise, excise, sales, and use taxes.

Can offer individual and corporate donors a tax deduction for their contribution. This is an incentive for taxpayers who itemize their deductions.

Are eligible to receive foundation grants.

Are eligible for lower postal rates with the U.S. Postal Service.

Are viewed as a whole as reputable organizations.

501(c)(3) Application Package

At minimum, to apply with the IRS for recognition

as a 501(c)(3), and organization will need:

Form 1023 Application for exemption

Financial Plan (3-5 years)

Articles of Incorporation

Bylaws

Conflict of Interest Policy

State-level Compliance





Exemption




Processes

State Level Compliance

A variety of state-level filings may have to

be completed on an annual basis.

Failure to complete all state required

filings may result in the organization owing

state taxes, falling out of good standing, or

even being administratively dissolved.

Form 941 for Employees

This is a quarterly filing for organizations

who have paid employees.

Like all employers, charities who pay

wages must withhold, deposit, and pay

employment taxes-including federal

income tax, Social Security, and Medicare.

State Corporate Tax Returns

Nonprofits must be sure to obtain state level

sales and income tax exemptions, if available

in their state.

If the organization is not granted state

exemption, they must file and pay taxes!

In some cases, organizations exempt from

state taxes must still file some sort of annual

return (varies state to state)

Annual Reporting





Exemption




Processes

Books and Records

Organizations must keep adequate records of their finances, thus professional bookkeeping is essential: Document all sources of receipts and

expenditures

Keep donor records

Retain all supporting documents-such as grant applications and awards, sales slips, paid bills, deposit slips, cancelled checks

Prepare annual financial statements

Form 990

Form 990 (Annual Tax return for Exempt Organizations)

ALL organizations now required to file, regardless of revenue

Penalties imposed for not filing

Revocation of 501 status if not filed for 2 or more years in a row

Professional bookkeeping year round makes filing a breeze

CharityNet USA

Services & Processes





Exemption




Processes

CharityNet USA Pricing

Prices charged for completion of the

paperwork necessary to establish a nonprofit

organization will vary, depending on how far

the client is in the process and how many

supplemental documents they’ve already

prepared.

In addition, pricing may be affected by the

number of state level filings required in the

client’s state.

Price quotes include only document

preparation fees, and all government filing

fees will be the responsibility of the client.

CharityNet USA Services

CharityNet USA provides:

501c3 tax exempt services

State tax exemption & Charity Registrations

Articles of Incorporation

Grant writing Services

Strategic Planning Services

Web development Services

Bookkeeping and Accounting Services

Our Process

Once a sale has been made, clients are given access to a specific “Steps Page” related to the service purchased

Here, they will find a variety of information, FAQ, processes, and questionnaire to help them provide us with quality content to complete their work.

Additionally, we provide value added resources to build goodwill and help our clients manage or grow their business.

Conclusion

As a nonprofit consultant, your goal is to be recognized as a trusted advisor, share ideas, and build relationships with local nonprofits and churches.

CharityNet will support you with service experts in a variety of key competencies including tax & accounting solutions, marketing, graphic design, writing services, web development, and more.

The key to success will be to help your clients find revenue through fundraising and then recommend fundamental services to build a strong foundation and successful future.

Contact us

Call us for more information

Tel#: 407 857 9002

Ask about our promotions and easy pay plans

E-mail : [email protected]

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