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Starting a Nonprofit: Understanding the 501c3 Application Process

By Heather Brown
February 09, 2018

The early stages of starting a nonprofit are full of research, writing, and plenty of time-consuming tasks. The scariest part of starting a nonprofit or any business is not knowing if it will work. Nonprofit organizations are on the rise across the United States with more than 1.5 million charitable organizations currently formed.  Starting a nonprofit is a valuable way to give back to your local community, help others, and increase awareness about specific topics.

If you’re ready to start your own nonprofit, your mind is probably full of ideas, possibility, and the desire to open your doors tomorrow. There are several things to consider and piles of paperwork to wade through before that happens though. The first crucial step is research and making sure the community has a need for your nonprofit concept in addition to creating your by-laws, articles of incorporation, applying for a FEIN, and gathering money to cover initial application fees.

Applying for a 501c3 Status

Another important step in forming a nonprofit is applying for a 501(c) (3) status. A 501c3 refers to the tax code that grants nonprofit, religious, and educational organizations a tax break or a tax exemption. 501c3 status is also required for some activities in the early stages of forming the nonprofit like buying insurance where you have to show proof of registration.

Not paying federal tax is a great benefit to charitable organizations; it is not an easy process to be approved. We’ve put together a checklist to help you break the process into management steps while keeping yourself organized.

  • Understand the Qualification Requirements

 

Not every organization automatically qualifies for exempt status. To be eligible for a 501c3 status you must be a trust, corporation, or unincorporated association along with falling into one of eight organization categories.

  • Complete the Right Application

 

There are two applications available for organizations known as forms 1023 and 1023-EZ. The first is more than 20 pages and intended for larger nonprofits. The latter is a three-page version intended for organizations with less than $50,000 in gross receipts and $250,000 in assets.

  • Gather Relevant Documents

 

Make sure you have all necessary documents like by-laws, articles of incorporation, and marketing materials about your nonprofit. The more information you have that explains the mission and vision of the nonprofit, the stronger your case is for tax-exempt status.

  • Be Intentional in Your Narrative

 

The longer application includes a written narrative where you describe the who, what, where, when, and how of your nonprofit. Include as much detail in the section as possible. Don’t forget to include why your organization qualifies for the special tax exemption status. Most importantly, be intentional in your narrative by sticking to the facts so your mission is clear.

  • Request a Second Set of Eyes

 

Just like an important document or paper, a second set of eyes is always beneficial. Ask another member of your board to review the application and narrative, double checking for spelling and grammatical issues. The more professional you appear upfront, the better your chances of avoiding any delays in the application process.

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