A nonprofit organization is an entity, not for profit, organized for charitable, educational, or other purposes. To get nonprofit status with the IRS (known as 501(c)3 Tax-Exempt Status), you must file IRS Form 1023. This article will provide some tips to make your charitable contributions count towards your nonprofit’s exemption. If you’re reading this and thinking “I don’t know where to start,” you’re not alone! Here are ten simple ways that nonprofits can increase their chances of success when applying for tax-exempt status with the IRS.
IRS Form 1023
The first step to becoming a nonprofit organization is to file IRS Form 1023 with the IRS. The form must be filed within 27 months of the date your nonprofit was created. Once you have completed the form, it will provide any questions that need to be answered during your application process.
The form is available on the IRS website and can be filled out using Adobe Acrobat PDF format or Microsoft Word. It is also possible to fill out this form on your computer or tablet with an internet connection, but it cannot be completed on a smartphone.
A user-friendly version of the form called e-File Form 1023 can also be found here! This will make filing much easier because you won’t need to type in all of your information (it does need to be printed off before you mail it).
Steps to obtaining 501(c)3 Tax-Exempt Status
In order to receive 501(c)3 Tax-Exempt Status from the IRS, you must first file IRS Form 1023. To qualify for this tax-exempt status, your nonprofit must meet specific requirements of the IRS.
This article will provide some tips to make your charitable contributions count towards your nonprofit’s exemption.
1) Have a mission statement
2) Have a mission that is not political or partisan
3) Have a mission that is legal and moral in nature
4) Have a long-term commitment to operate as a nonprofit organization
5) Have a board of directors with an equitable distribution of power and representation
6) Be at least 18 years old
7) Include qualified persons as members on the board of directors and as officers in charge of fulfilling the legal duties of the organization 8) Include information on activities for which support is sought 9) File articles of incorporation with state authorities 10) Adhere to donor privacy policy
Apply early!
The first step to applying for 501(c)3 Tax-Exempt Status with the IRS is to file IRS Form 1023, which allows you to request an exemption from federal income tax.
You should start this process early in order to give yourself more time if anything turns up missing or you need any additional information. The earlier you apply, the better chance you’ll have of getting approved quickly.
One of the most common mistakes nonprofits make is waiting until they’ve already submitted their application before looking for help with filling out the form. This can lead to delays because it takes time for organizations like United Way of Greater St. Louis Nonprofit Center to provide feedback on your application. The more time you spend working with us before submitting your application, the better prepared we will be when it comes time to submit it at the end of your process.
Keep a written record of donations and meetings
One of the most important things you can do to get nonprofit status is to keep a written record. This will be your evidence that the organization has been created for charitable purposes and that it’s not just an excuse to make money. To qualify, you must also show that it’s “organized exclusively” for one of these purposes.
This means that your nonprofit should spend all its time and resources on achieving its mission statement—and not on anything else. If you are organizing the nonprofit for educational purposes, then your nonprofit should focus on maintaining or improving knowledge by educating others with similar interests.
If you are creating a nonprofit for public interest, then the organization should be devoted to upholding public policies in place, improving public health, or ensuring safety in some way. And if you are creating an organization for religious purposes, then its purpose is to spread awareness about a certain religion or promote spiritual enlightenment in order to help members of that religion live according to their principles.
Keep good records of your organization’s finances
Your nonprofit should have a complete record of all finances, including bank statements, investment records, financial statements, and the amount of money you’ve spent on different areas. You should keep these records for at least five years after the end of your fiscal year.
Include all the necessary documents in your application
The IRS needs to know that your nonprofit organization is organized to help a charitable purpose. Nonprofits must include a detailed explanation of the specific purposes that their organization will carry out.
In addition, they should provide a statement that the activities of the organization will be limited to those purposes, and statements from governing documents or articles of incorporation from any parent entity.
Nonprofits should also provide documentation of all their assets and liabilities. If you don’t have this information, gather it as soon as possible because the IRS may not approve your application without it.
It’s important to provide your EIN (Employer Identification Number) for each state where your nonprofit conducts business. The IRS will need this number for its records and other filings.
Be honest and truthful with the IRS
Because the IRS will review your application for tax-exemption, it’s important to be honest and truthful with them. The IRS will want to know about the activities your nonprofit would like to engage in, as well as how it intends to operate. You’ll also need to provide detailed information about any property you own, donations you’ve received, and expenditures made by the organization.
It’s important that you answer all questions truthfully because any false or misleading responses may result in criminal prosecution. If you’re not sure what an appropriate response might be, consult with a tax attorney or speak to someone at the IRS for guidance on what is expected of nonprofits.
Prepare for changes in rules and regulations
The IRS is not likely to change the rules frequently, but there are some changes that may impact your nonprofit’s tax-exempt status. The most significant of these changes are found in the Tax Cuts and Jobs Act of 2017.
One change that has already gone into effect is that you can no longer deduct expenses for goods sold if they were donated. If you’re wondering what this means for your organization, here’s an example:
Your nonprofit sells a box of chocolates for $10 and the customer pays by check. You give them a receipt indicating a cost of $9. You donate the entire box to a local food pantry, which is a qualified charitable organization. This would be considered a taxable transaction for both the customer and your nonprofit even though you donated it to a qualified charitable organization! The IRS will still allow deductions for contributions received from other sources such as grants, membership fees or government contracts.
In addition to paying close attention to new regulations from the IRS, it’s always good practice to keep track of changes in state law affecting nonprofits too. Some states have very specific requirements when applying for exemption status with the IRS so be sure to research state law prior to filing Form 1023.
Involve your board of directors from the start
Many nonprofits never get past the application process because the directors don’t involve themselves in the process early on. Board members should be briefed on the importance of how they can help their nonprofit get approved for tax-exempt status. Board members should also be familiar with what they can do to make their organization’s application stand out from others.
What are some ways board members can help? Approving an official mission statement, fundraising strategy, and budget will show your nonprofit is well-organized and committed to its goals. It will also show that you’re following IRS guidelines by documenting your progress and annual reports.
Conclusion
The process of obtaining 501(c)3 Tax-Exempt Status is a lengthy one. But don’t let the length of the process be a deterrent. If you have a good plan and a supportive board of directors, you can become a 501(c)3 Tax-Exempt Status. Best of luck with your application!
