There are a lot of ways to push for social change or raise money for charitable causes in your community. One of the more formal options is to start a 501c3 nonprofit organization. With the right mix of passion, teamwork, and intelligence, these organizations can have a profound and direct effect on their communities.
But saying you want to push for change in your community is one thing; doing the work to make it happen is another. Starting your own nonprofit can be an overwhelming process for anyone who doesn’t have previous experiences to fall back on.
Read our guide to learn how to start a 501c3 nonprofit, 501c3 requirements, and how to best set yourself up for success with board portal technology.
What is a 501c3?
A 501c3 is a specific type of nonprofit organization in the United States. 501c3 organizations are exempt from federal income tax under section 501c3 of the Internal Revenue Code.
When starting a 501c3, there are several key steps you must follow to improve efficiency and output. It’s important to note that 501c3 requirements vary from state to state. For example, Pennsylvania has unique requirements when compared to Georgia and Michigan.
501c3 organizations fall into three categories: charitable organizations (groups organized to serve one or multiple specified categories), churches/religious organizations, and private foundations (organizations with a single major source of funding and the goal to grant money to other nonprofits or individuals working toward the same purpose).
In addition to being exempt from federal taxes, nonprofits are also eligible to take grants from private and government sources, and all contributions are deemed tax-deductible.
Ensure effective, efficient meetings with our comprehensive Board Meeting Agenda Template.
How to Start a 501c3
Follow these steps to launch a 501c3.
1. Define Your Mission and Purpose
All aspiring nonprofit founders should clearly understand what they want to do with their 501c3 organization. This is best communicated in the form of a mission statement.
At the federal level, an organization must meet the IRS definition of a charity to earn the 501c3 distinction. Your nonprofit must pursue one of the following objectives:
- Providing aid to the poor and underprivileged
- Promoting the advancement of a religion
- Promoting the advancement of science
- Advocating for civil or human rights
- Preventing or eliminating discriminatory policies
- Preventing and advocating against child abuse or animal cruelty
2. Incorporate Your Nonprofit
The next step is to turn your nonprofit into a formal organization. File articles of incorporation with your state’s government. The articles should include your nonprofit’s name, purpose, area of operations, board of directors, employees, voting structure, and registering agent (either you or a co-founder). Each state will have its own list of incorporation requirements, which you can look up in the IRS State Links for Exemption.
You should also apply for an employer identification number (EIN). An EIN is a unique nine-digit number that is used by the IRS to identify your organization. An EIN is required for tax reporting purposes, to open a business bank account, and to manage payroll.
To obtain an EIN, fill out IRS Form SS-4. If you apply over the phone or online, you can receive the number immediately. If you do so via fax, it will take up to four business days, and four to five weeks if done by mail.
3. Appoint a Board of Directors
Now is the time to recruit a board of directors for your nonprofit. Board members are charged with making significant decisions regarding the nonprofit’s long-term direction and managing the organization in line with the agreed-upon governance model.
Board roles usually include a chair/president, vice president, secretary, fundraising chair, and community outreach chair. The size of your board can change depending on your needs and the state’s requirements.
To make the best choice regarding new board members, recruit people from diverse backgrounds who share a passion for the nonprofit’s mission and have appropriate skills for the specific position. The recommended term limits for board members is two consecutive three-year terms. All nonprofits should also have a board evaluation process to review the performance of each person.
4. Apply for Federal Tax-Exempt Status
To receive your 501c3 tax exemption from the IRS, you need to fill out one of two forms. Form 1023 is about 40 pages long and can take up to six months to process. Form 1023-EZ is a streamlined version of the form that is best suited for nonprofits that have less than $250,000 in assets and will bring in less than $50,000 in donations (annual gross receipts) for the next three years. The form is only three pages long and typically takes two to four weeks to process. The filing fee for Form 1023 is $600. For Form 1023-EZ, it is $275.
If you have other questions, you can call the IRS Tax Exempt and Government Entities Hotline.
5. Comply With State and Local Requirements
To retain your status as a 501c3 organization, you must fill out IRS Form 990, a four-part document listing the nonprofit’s income, expenses, assets, and other pieces of operational information, annually. If your gross receipts are under $50,000, you can file a 990-N form instead. Some states will also require an additional state or sales tax exemption application.
Nonprofit status can be revoked if the IRS finds sufficient proof that the organization is violating certain rules pertinent to the 501c3 code. Examples of violations include using the nonprofit to serve the interests of the founder or other shareholders, using profits for non-charitable activities, or engaging in direct political advocacy for a specific party or candidate.
Note: A 501c4 organization generally has fewer restrictions.
OnBoard Powers Effective 501c3 Organizations
Running a productive nonprofit can be a complicated task. Board members and other senior leadership figures need to be individually proficient in their roles and able to work well with others. You also need to keep track of many pieces of information and documentation to ensure you don’t lose your tax-exemption status in the future.
There are a few extra steps that effective nonprofits take to streamline governance. A board portal solution like OnBoard makes it simple and easy to conduct more effective board meetings. OnBoard’s user-friendly design, intuitive meeting creation tools, insightful analytics, and real-time collaboration equip boards with a modern set of features and toolsets.
If you haven’t yet considered a board portal solution for your nonprofit organization, we recommend downloading our free guide: Board Management Software Buyer’s Guide.
What’s inside?
- The mission-critical technology, features, and security of board software
- How to identify best-in-class board software providers
- A practical board management vendor comparison tool
Download this guide and make an informed decision for your board and nonprofit!
The comprehensive blueprint for selecting a results-driven board management vendor.
Ready to upgrade your board’s effectiveness with OnBoard the board intelligence platform? Schedule a demo or request a free trial.
About The Author
- Gina Guy is an implementation consultant who specializes in working with nonprofit organizations get the most from their board meetings. She loves helping customers ease their workloads through their use of OnBoard. A Purdue University graduate, Gina enjoys refinishing furniture, running, kayaking, and traveling in her spare time. She lives in Monticello, Indiana, with her husband.
Latest entries
Board Management SoftwareMarch 12, 20245 501c3 Grants to Apply for in 2024
Board Management SoftwareMarch 11, 2024How to Maintain 501c3 Tax-Exempt Status (Step-by-Step)
Board Management SoftwareMarch 8, 2024Q&A: Can a Church be a 501c3?
Board Management SoftwareMarch 7, 2024How to Start a 501c3 (Step-by-Step)
