How to start a 501(c)(3) nonprofit: The complete guide

For a charitable organization, earning 501(c)(3) status is the first step toward making positive change at scale. With this title comes greater levels of donor trust and income tax-exemption status that protects your funding. If you’re wondering how to start a nonprofit organization, we’re here to help.

Explore everything you need to know about starting a 501(c)(3) tax-exempt organization and strategize your next steps to make it a reality.

The complete guide to registering a 501(c)(3) nonprofit

In this guide, you’ll learn about selecting your 501(c)(3) nonprofit’s operating structure, filing for tax exemption, finding resources, and building your charitable contributions.

What is a 501(c)(3)?

An organization seeking 501(c)(3) status must comply with that section of the Internal Revenue Code (IRC). Administered by the Internal Revenue Service (IRS), a bureau of the U.S. Department of the Treasury, the IRC allows organizations to operate as tax-exempt.

As a tax-exempt organization, 501(c)(3) organizations can receive donations and nonprofit grants. Such designation allows these entities to apply for government funding, corporate funding, individual donations, foundation grants, and more.

Additionally, 501(c)(3) organizations don’t receive money for services rendered, such as fundraising or administrative expenses. Instead, these organizations must raise all funds through private contributions.

Tax benefits and requirements

Establishing a 501(c)(3) allows individuals or businesses to give money to the nonprofit without it counting against personal income taxes. And because these charitable contributions are tax-deductible, donors can write them off as donations when filing taxes.

However, 501(c)(3) organizations must have an IRS-recognized charitable purpose and operate accordingly to qualify as a charity under federal law. To start a nonprofit, you must first register your organization with the IRS.
Once registered, the IRS allows nonprofits to deduct certain noncash charitable giving, such as volunteer hours, goods donated, and equipment used.

Limitations of a 501(c)(3) organization

Organizations recognized as tax-exempt nonprofits enjoy significant benefits while also facing several restrictions to maintain that status. Some of the most notable limitations, especially pertaining to lobbying and political activities, include:

1. Political campaign activity: The IRC strictly prohibits 501(c)(3) organizations from participating in political campaigns for or against any candidate.
2. Lobbying: These organizations can engage in limited lobbying activities to influence legislation, but excessive lobbying can jeopardize their tax-exempt status. Therefore, lobbying can’t be a substantial part of what your organization does.
3. Unrelated business income: Organizations may have to pay taxes on business activities unrelated to their exempt purpose.
4. Benefit to private interests: Activities should not excessively benefit private interests, like nonprofit board members or employees.
5. Annual reporting obligation: Most 501(c)(3) organizations must file annual IRS forms (for example, Form 990, Form 990-EZ, or Form 990-N) to provide operational details.
6. Public scrutiny: The application for tax exemption and annual tax returns are public records available for inspection by the general public.
7. Limitations on international activities: These organizations can operate internationally but must ensure alignment with their charitable purpose and legal guidelines.

3 types of 501(c)(3) organizations

There are three types of 501(c)(3) organizations:

1. Public charities: These organizations “serve a public purpose and exist to benefit the community as a whole.”
2. Private foundations: These charitable organizations own more than half of their assets and make grants for public purposes (for example, hospitals or universities).
3. Social welfare organizations: These organizations focus on serving one or more of five broad categories:
   • Helping people deal with poverty-related problems
   • Assisting disadvantaged individuals in finding employment
   • Preserving or restoring opportunities for low-income people
   • Improving conditions in low-income neighborhoods
   • Helping individuals improve their lives by providing them with services such as day care centers or homeless shelters

The IRS recognizes around 30 types of nonprofit organizations, but only those that qualify for 501(c)(3) status can claim tax-deductible donations.

To be considered a charitable organization by the IRS, a group must operate exclusively for one of these purposes:

• Charity
• Religion
• Education
• Science
• Literacy
• Testing for public safety
• Fostering national or international amateur sports competition
• Preventing cruelty to children or animals

Additionally, the IRS defines charitable activities as:

• Relieving the poor, the distressed, or the underprivileged
• Advancing religious organizations
• Advancing education or science
• Erecting or maintaining public buildings, monuments, or works
• Lessening the burdens of government
• Lessening neighborhood tensions
• Eliminating prejudice and discrimination
• Defending human and civil rights secured by law
• Combating community deterioration and juvenile delinquency

Organizations that qualify for tax exemption under section 501(c)(3) must not serve any private interests, including those of the creator, the creator’s family, shareholders, other designated individuals, or others controlled by private interests.

Additionally, an organization’s net earnings cannot benefit private shareholders or individuals, meaning the earnings must be solely for charitable purposes. Double-check these conflicts of interest before pursuing 501(c)(3) status.

Nonprofit vs. tax-exempt organizations

What is the difference between a nonprofit and a 501(c)(3)?

A nonprofit is any organization that operates for a mission rather than to generate profits for owners or shareholders. A 501(c)(3) is a specific type of nonprofit that has been granted tax-exempt status by the IRS under Section 501(c)(3) of the IRC.

Not all nonprofits are tax-exempt, and not all tax-exempt organizations are 501(c)(3)s. Receiving 501(c)(3) status requires IRS approval and provides important benefits, including eligibility to receive tax-deductible charitable donations and many grants. In exchange, organizations must comply with rules that limit lobbying and prohibit participation in political campaigns.

Many charitable organizations—including churches, schools, universities, hospitals, and scientific research institutions—qualify to apply for federal tax-exempt status. The IRS also recognizes other types of tax-exempt organizations, such as social welfare organizations, each with its own eligibility requirements and regulations.

4 steps to starting a 501(c)(3)

Getting started is easier when you take it one step at a time. Here are the four key steps to forming a 501(c)(3).

1. Decide which type of nonprofit you want to establish

Before establishing your 501(c)(3) nonprofit, decide which type of nonprofit organization you want to be. Among the numerous types of nonprofit organizations, the most common are:

• 501(c)(3), which are charities
• 501(c)(4), which are social welfare organizations or civic leagues
• 501(c)(6), which are business leagues or trade associations

The IRS provides a chart detailing each organization’s purpose and rules for establishing each type.

2. File for 501(c)(3) tax exemption

The second step in starting a nonprofit is filing for 501(c)(3) tax exemption with the IRS. To obtain 501(c)(3) tax-exempt status, you must file Form 1023 and Form 990 with the IRS.

Form 1023 is an application for tax exemption, and every new 501(c)(3) organization, including the existing ones that wish to make an organizational change, must complete one. If you’re unsure whether your entity qualifies as a nonprofit under section 501(c)(3), consult with a tax attorney before proceeding with this step.

The IRS website provides detailed instructions on filling out Form 1023 or Form 1023-EZ, and submitting it online through Pay.gov. Once approved, you can use the Tax Exempt Organization Search Tool to verify your nonprofit’s listed status. Keep in mind that the IRS receives more than 95,000 applications for tax-exempt status each year.

How long does it take to get 501(c)(3) status?

According to the IRS website, 80% of Form 1023-EZ application determinations are made within 22 days, with applications requiring further review extending up to 120 days. This may also be affected by the time of year you file. Expedited processing is available for Form 1023 only if there is a compelling reason why it is necessary.

How much does it cost to start a 501(c)(3)?

The fee to file Form 1023 is $600, whereas the fee for Form 1023-EZ is $275. You may file the simpler and faster option of Form 1023-EZ if you expect annual gross receipts of $50,000 or less. State incorporation fees, generally falling between $30 and $125, also apply and there may be additional fees if you use legal or advisory services for filing.

3. Prepare and file your incorporation paperwork

Before you can incorporate your nonprofit, learn how to file for 501(c)(3) status within the state where you plan to incorporate. This includes:

• Articles of incorporation: The articles of incorporation are the formal paperwork you’ll file to form your nonprofit corporation. These include any licenses and permits required by your state’s nonprofit corporation laws. You’ll also pay a small filing fee.
• A board of directors: The board of directors usually comprises volunteers or paid employees of the organization who serve as a fiduciary or steward—a person who carefully manages the nonprofit’s money, resources, and mission—for the group. Your board members ensure that all business conducted complies with the law and ensure proper handling of financial transactions. Regarding who you need on your nonprofit board, you should have at least three people.
• Bylaws: The bylaws are rules governing how the organization will operate, including its structure (for example, having a board), meeting procedures, elections, voting rights, and other organizational policies. Also, include provisions for amendments to these bylaws when appropriate. These amendments require a majority vote approval at any regular or special meeting of members called for that purpose, and 15 days’ written notice before such meeting specifying the changes considered for adoption.

Do I need a lawyer to start a 501(c)(3)?

You don’t have to use a lawyer for your nonprofit to file 501(c)(3) status, and many founders file successfully without one. However, we recommend that organizations with complex structures or significant assets seek legal guidance. A nonprofit attorney can review your articles of incorporation, bylaws, and Form 1023 application to reduce the risk of IRS rejection. Additionally, many state bar associations offer reduced-fee or pro bono consultations specifically for nonprofit founders.

4. Write up your bylaws

Lastly, write up your nonprofit bylaws, the rules that govern the organization. Bylaws should be in plain language and approved by the board and the members. Because 501(c)(3) requirements for these documents can be very specific, it’s best to consult a tax attorney or nonprofit legal expert to ensure your bylaws meet those standards.
Once approved, the board of directors will review the bylaws annually.

What’s next?

After you’ve filed your paperwork, you’ll receive a determination letter from the IRS. It’s a formal document that confirms the tax-exempt status of your nonprofit organization. This document is crucial because donors often request it as proof that contributions to your organization are tax-deductible contributions.

You also can apply for your employer identification number if you haven’t received that already. However, wait until you’ve filed for incorporation or received your federal tax exemption to apply for this.

Is a nonprofit right for you?

If you’re thinking about starting a nonprofit, you’re not alone. There are more than 1.9 million nonprofit charitable organizations in the U.S. doing everything from providing food to the homeless to supporting the arts to ending human exploitation.

So how can you tell if starting a nonprofit is right for you?

First, ask: What are the goals of your organization? If your mission is broad or vague at the start, that’s OK. Just make sure it’s tangible and realistic, then iterate as you move throughout the development process.

Second, talk with other experienced founders or fundraisers. They’ll be able to advise you on what works and what doesn’t, current trends in the sector, how to set realistic expectations, and more.

Third, make sure your nonprofit fulfills a need and that there isn’t already another organization doing similar work. If another organization with similar goals and target beneficiaries already exists, look into joining their operation or creating a partnership to work together instead of functioning independently.

When creating a nonprofit organization, it’s crucial to remember that you have the potential to impact hundreds or thousands of lives. Think carefully about what impact you want your organization to have on society and make sure it aligns with your goals and values.

Now, it’s your turn

Are you ready to start a nonprofit? Learn best practices to supercharge your online fundraising campaigns, and look no further than GoFundMe Pro’s fundraising platform to help you build your nonprofit donation pages and begin broadcasting your mission to the world.

Copy editor: Ayanna Julien