Starting a Nonprofit Organization

A nonprofit organization commonly performs some type of public or community benefit, without the purpose of making a profit. There are various categories of nonprofits recognized by the Internal Revenue Service (IRS): 

• Charitable or religious organizations
• Social welfare organizations
• Labor and agricultural organizations
• Business leagues
• Veterans organizations

Each category has different tax benefits and requirements. While the majority of nonprofits are classified under 501(c)(3) of the IRS Code as charitable organizations, you should review the categories to determine the right choice for your nonprofit organization.

This process is very similar to creating a regular corporation except that you have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division. These are the steps to take to incorporate your nonprofit:

1. Choose a business name - Make sure to check the state-by-state information on the various laws that apply to naming a nonprofit in your state.
2. Appoint a Board of Directors - Draft your bylaws with guidance from your Board of Directors. These are the operating rules for your nonprofit.
3. Decide on a legal structure - Choose whether your organization will be a trust, corporation, or association.   
4. File your incorporation paperwork - You must next file formal paperwork, or articles of incorporation, and pay a small filing fee to your state. Look up your state office through the National Association of State Charity Officials (NASCO).  
5. Apply for tax-exempt status - A nonprofit organization may be eligible for exemption from federal income tax. The IRS provides guidance and instructions on applying for tax-exempt status. Learn more about federal tax exemption requirements in IRS Publication 557 - Tax-Exempt Status for Your Organization (PDF, Download Adobe Reader) or by calling the IRS Tax Exempt and Government Entities Hotline at 1-877-829-5500.

6. Obtain necessary licenses and permits - Does your nonprofit have all the licenses and permits needed to comply with federal, state, and local rules?

While individual donors make up the largest contributors to nonprofit organizations, federal, state and local governments offer grants, loans, and programs to support funding. Grants.gov helps you find and apply for federal government grants for your nonprofit.

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