How Do You Start a 501(c)(3)?
Develop a mission statement: A 501(c)(3) organization must have a charitable, educational,
religious, scientific, literary, or other similar purpose that is exclusively for public benefit. You should develop a mission statement that clearly outlines the purpose of your organization.
Choose a name: Choose a name for your organization that reflects its mission and purpose. You should check if the name is available and not already in use by another organization.
Draft bylaws: Bylaws are the rules that govern the operations of the organization. You should draft bylaws that outline how the organization will be governed, the roles and responsibilities of the board of directors and officers, and how decisions will be made.
Incorporate your organization: You must file articles of incorporation with the state in which you plan to operate. The articles of incorporation should include the name of the organization, its purpose, and its structure.
Obtain an Employer Identification Number (EIN): You must obtain an EIN from the IRS.
This is a unique identification number that is used for tax purposes.
Apply for tax-exempt status: To obtain tax-exempt status, you must file Form 1023 or 1023-EZ with the IRS. This form requires detailed information about your organization, including its purpose, activities, governance structure, and financial information.
Register with state and local authorities: Depending on the state in which you plan to operate, you may need to register with state and local authorities to conduct business and solicit donations.
How Much Does It Cost to Start a 501(c)(3)?
The cost of starting a 501(c)(3) organization can vary depending on a number of factors, such as the state in which you plan to operate, the size and scope of your organization, and whether you choose to hire professional assistance. Here are some of the main costs you may encounter:
Incorporation fees: The cost of incorporating your organization will depend on the state in which you plan to operate. In general, incorporation fees range from a few hundred dollars to
several thousand dollars.
Legal fees: You may need to hire an attorney to help you draft your organization’s bylaws, articles of incorporation, and other legal documents. Legal fees can range from a few thousand dollars to tens of thousands of dollars, depending on the complexity of your organization’s legal needs.
Accounting fees: You may need to hire an accountant to help you prepare your organization’s tax returns and financial statements. Accounting fees can range from a few hundred dollars to several thousand dollars per year.
IRS application fees: The application fee for filing Form 1023 to apply for tax-exempt status is currently $600 for organizations with projected annual gross receipts of more than $10,000 for the
first 4 years of operation, and $275 for organizations with projected annual gross receipts of $10,000 or less.
State registration fees: Depending on the state in which you plan to operate, you may need to register with state and local authorities to conduct business and solicit donations. Registration fees can range from a few hundred dollars to several thousand dollars.
How Long Does It Take to Get a 501(c)(3) Determination Letter?
The length of time it takes to receive a determination letter from the IRS for a 501(c)(3) application can vary depending on several factors, including the complexity of the application, the volume of applications the IRS is processing, and any issues or questions that may arise during the review process. In general, it can take anywhere from several weeks to several months to receive a determination letter.
If you file Form 1023-EZ, which is a simplified application for small organizations with gross receipts of $50,000 or less and assets of $250,000 or less, the IRS aims to process your application within 90 days. However, if your application is incomplete or contains errors, it may take longer.
If you file Form 1023, which is the standard application for tax-exempt status, the processing time can be longer. The IRS aims to process these applications within 180 days, but it can take longer if the application is incomplete, contains errors, or requires additional review or clarification.
If you need expedited processing for your application, you may be able to request expedited handling for an additional fee. However, not all applications are eligible for expedited processing.
It is important to note that you cannot claim tax-exempt status until you receive a determination letter from the IRS granting your organization 501(c)(3) status. Therefore, it is important to plan accordingly and factor in the potential wait time when starting a 501(c)(3)
Do You Need to Be a corporation to Get a 501(c)(3)?
According to the IRS, to qualify for the 501(c)(3) status, the organization must be formed as a “trust, corporation, or association.”
What is the Difference Between a 501(c)(3) and a 501(c)(4)?
The main difference between a 501(c)(3) organization and a 501(c)(4) organization is their tax-exempt purposes and the level of political activity they are permitted to engage in.
501(c)(3) organizations are tax-exempt entities that are organized and operated exclusively for charitable, religious, educational, scientific, literary, or other charitable purposes. These
organizations are generally prohibited from engaging in partisan political activity, such as endorsing or opposing candidates for public office. 501(c)(4) organizations, on the other
hand, are tax-exempt entities that are organized and operated primarily for social welfare purposes. These organizations are permitted to engage in a limited amount of political activity, such as lobbying for legislation that advances their social welfare goals or engaging in political campaigns to support or oppose ballot initiatives or referendums.
In addition to their different tax-exempt purposes and political activity restrictions, there are also some differences in the tax treatment of donations to these organizations. Donations to 501(c)(3) organizations are generally tax-deductible for the donor, while donations to 501(c)(4) organizations are not.