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Nonprofit Incorporation

We regularly receive requests for information on how to “start a nonprofit.” Here are answers to the basic questions.

WARNING! The following information is intended for general consideration ONLY. We strongly advise that you contact Next Level Insights or your own experienced attorney (the word “experienced” is important here–not all attorneys are created equal) before proceeding.

Incorporate your organization at the state level

This usually is a simple, quick process, done through the Secretary of State’s office for the state in which you want to do business (although you can incorporate in another state). Check the website for the state in which you reside to understand the exact process.

State incorporation does NOT get you exemption from income taxes. To learn more, read on.

Obtain a federal tax identification number – an “FEIN”

This is a simple process that can be accomplished by contacting the Internal Revenue Service. You can appliy online, by phone, by fax, or by mail. To learn more visit www.irs.gov and type “FEIN” into the search box.

Apply for “tax exempt” status if you wish.

To become exempt from federal and state corporate income taxes, you must apply for and obtain tax exempt status from the Internal Revenue Service. This is accomplished by filing form 1023. The process may be easy or difficult, depending upon a number of factors related to your goals and how you complete the application. Be aware it is a somewhat time-consuming process and there is a $500 fee to apply.

NLI strongly recommends the engagement of an experienced attorney or other professional resource for this process, although this is not required. You can go through the process on your own. However an experienced professional can help you avoid pitfalls which may derail your application.

Next Level can provide guidance and assistance in helping you obtain tax exempt status. Simply call 1-866-524-2654. Your initial consultation with us is free. Should you decide to move forward, we can guide you in completing the application yourself, do it for you, or connect you with an experienced legal firm for assistance.

OK. Back to the process. Actually, it’s rather simple:

  • Complete Form 1023. This is a multi-page document that asks a range of questions about your purpose, your finances, and your leadership. A copy of the application and related instructions is available at www.irs.gov.
  • Send your application and fee to the IRS.
  • Respond to any questions the review agent presents.

The entire process can be as short as 3 months, or as long as 9 months. The chief concern of the Internal Revenue Service is that the purpose of the organization truly qualifies to be exempt from taxes. For a list of exempt purposes, see the instructions that accompany the application.

Costs

In addition to the application fee with the IRS, you can expect to pay anywhere from $1,500 to $5,000 for experienced help in applying for tax exempt status. The advantage in paying someone is that in the end, you will likely get your status. The downside is that it costs you a bit at a time when cash is usually not plentiful.

Receiving and Receipting Donations

After you have submitted your completed application to the IRS for review, you are allowed to issue receipts to donors for contributions to your organization. These receipts may be used as evidence of donations so donors can claim their contribution as a deduction on their income tax return.

However, be advised that if your application is eventually rejected by the IRS, donors will need to file amended returns reversing their claim of deductibility. NLI advises clients to place a small notation on receipts issued stating this fact.

Questions?

Please call 1-866-524-2654 or email info@nextlevelinsights.com if you have questions.