Did you know that you can make your nonprofit exempt from paying taxes? All you have to do is register it with the Internal Revenue Service (IRS).
This guide can show you how.
When starting a nonprofit organization, one of the most critical steps is obtaining tax-exempt status from the IRS in the United States.
This status allows your nonprofit to operate free from certain federal taxes and can make your organization more appealing to donors.
In this accessible guide, we will walk you through the detailed process of requesting tax-exempt status from the IRS.
Alternatively, you can use our nonprofit startup service – and we’ll take care of all these steps for you!
1. Confirm the Eligibility of Your Nonprofit
Before proceeding, ensure that your nonprofit qualifies for tax-exempt status under one of the IRS-designated categories, typically 501(c)(3) for charitable organizations.
Confirm that your organization’s activities align with the IRS’s tax-exempt purposes.
If not, then you can make some adjustments until you meet the requirements. Making some changes is worth it for your nonprofit if you can benefit from the tax exemption.
2. Organizational Structure
Maintain a well-organized structure with clear bylaws, a board of directors, and a mission statement. Having all your ducks in a row is a show of competence on your part.
Doing this basically demonstrates to the IRS that you are committed to the goals of your nonprofit.
Granting tax-exempt status is done only after careful consideration. The more reliable you make your nonprofit, the better your chances will be.
3. Obtain an Employer Identification Number (EIN)
If you haven’t already, apply for an EIN through the IRS website. This is a crucial identifier for tax purposes and is essential for the application process.
The process itself is explained on the official portal.
However, if you need more information or additional guidance, you can call experts to help you out. This is a crucial aspect of starting a nonprofit, so consulting with professionals would be worth doing.
4. Choose the Right Form
Select the appropriate IRS form for your nonprofit type.
Most commonly, you’ll use Form 1023 for 501(c)(3) organizations or Form 1024 for other types of nonprofits. Ensure you have the most up-to-date version of the form from the IRS website.
Once again, consulting with professionals can make this process easier. Think of it as an investment to secure your nonprofit’s financial well-being.
5. Complete the Application
Carefully fill out the chosen form, following the instructions provided. Be thorough and accurate to avoid delays in processing.
This step requires detailed information about your organization’s activities, finances, and governance.
If you don’t have all of the necessary information on hand yet, then delay the application. It would be better to take some time to get it right the first time.
6. Attach Required Documents
Gather and include all necessary attachments, such as your organization’s bylaws, financial statements, and a detailed narrative of your activities and mission.
These documents provide evidence of your nonprofit’s legitimacy.
A tax exemption for any nonprofit organization is made to encourage their growth and development. If the IRS doesn’t believe in your nonprofit’s legitimacy, you won’t be getting this exemption.
7. Pay the Application Fee
Prepare to pay the required filing fee, which varies depending on your organization’s size and type. The fee is also non-refundable, so make sure you have the correct amount available.
Depending on the amount you need to pay, you may think that it’s not worth it.
However, you need to remember that the benefits offered by the tax exemption can be massive. If your nonprofit grows rapidly and rakes in funds through donations, the fee can become easy to ignore.
8. Submit Your Nonprofit Application
Mail your completed application, along with all attachments and the application fee, to the appropriate IRS address. That last part is crucial. Make sure that all of the details are correct before sending out the application.
You should also keep copies of everything for your records.
Doing so will help in the event of lost or misplaced documents on the part of the IRS. It’s happened before and you need to protect your nonprofit if it happens to you.
9. Wait for IRS Response
The IRS will review your application, which can take several months. They will be doing a lot of checks on everything you provided.
Be patient, as processing times can vary. You may receive requests for additional information during this period.
If you do, answer as honestly and as completely as possible. The more information you provide, the more reliable you will look.
10. Maintain Tax-Exempt Status of Your Nonprofit
Once approved, adhere to IRS guidelines to maintain your tax-exempt status.
This includes filing annual Form 990 or 990-EZ reports, keeping accurate records, and complying with any restrictions on activities.
Do not lose any of the documents that you get while complying with these requirements. It can be easy to get into legal trouble if you’re unable to provide the needed paperwork if they are ever requested.
Ready to Register Your Nonprofit?
Requesting tax-exempt status from the IRS is a detailed process, but with dedication and careful preparation, it can be successfully navigated. Seek professional guidance if needed and remember to stay committed to your nonprofit’s mission.
By following these steps, you’ll be on your way to securing the tax-exempt status that will help your organization make a significant impact in your community and beyond.
Want to learn more about starting a nonprofit organization? Check out this step-by-step guide for a smooth and stress-free process!