Speaker 1: In this video, I'm gonna show you everything you need to know about how to start a 501c3 tax-exempt nonprofit in the US. I'll go over what documents you need to prepare ahead of time, where to find application files, the exact steps you need to go through, how much it'll cost you, and tips throughout the whole process that can make things easier along the way. So the whole process can be pretty confusing because there are a lot of steps, but I've broken down everything into very simple terms for you. So I'm Terry, and I'm from Wild Apricot, and we make software for membership organizations. And over the last few years, I've worked with dozens of nonprofits, plus I wrote a complete guide on how to start a nonprofit from scratch. So let's just get into it. So first things first, just some benefits of starting a nonprofit. Besides gaining tax-exempt status, once you incorporate your nonprofit, one thing that many people don't consider is that you will also be personally protected from any liabilities of the organization. And this just means that if someone wants to sue your nonprofit for a business-related debt or injury or whatnot, they can only go after the corporate entity and not the personal assets of its owners, which I guess in this case are you. Mind you, there are also some things to avoid once you incorporate. For instance, nonprofits risk their tax-exempt status if they attempt to influence legislation. You may also not distribute any of the income you make at your nonprofit to you, your board members, or any other members or directors of the organization in the form of shares or dividends. Everything you make must be recycled back into the organization itself. Also, as a side note, that filing to be tax-exempt is a long and complex process, and many people choose to hire a lawyer to help them out. Of course, there are also a number of free resources online from the IRS and other sites like Wild Apricot that can help you understand what you need to know. So with that being said, here are the steps I will cover in this video. First, I'm gonna go over registering your nonprofit name, appointing your board of directors, creating bylaws, filing your Articles of Incorporation with your state office, obtaining an Employee Identification Number, or EIN, and then applying for tax-exempt status with the IRS. And then at the end, I'm gonna go over how to maintain ongoing compliance. So let's begin with step number one, which is to register a name. Now, you can't just pick any name for your nonprofit. You actually have to check your Secretary of State's office to see if the name you want is available, and if so, you have to register it with them, and that can cost about $25 usually. And at this point, it's important to note that you are just reserving your name until you file your Articles of Incorporation. You don't actually have that name that you registered yet, but this $25 that you pay just guarantees that no one else can take your name until you file. Step two, appointing your board of directors. Now, the reason you need to do this before you file for tax-exempt status is twofold. First, you have to list out their names and addresses when you file for incorporation and fill out your tax-exempt forms. And secondly, your board will help you create your bylaws, which are also required for incorporation. It's important to know that for the most case, board members cannot receive any compensation for their service. You should also adopt a policy addressing conflicts of interest ahead of time, just as a preventative measure. But the biggest reason you actually need a board is to help your nonprofit make decisions and manage finances and marketing activities, events, members, and other functions. So when looking for a board of directors, make sure your candidates have experience in these areas. Many nonprofits even appoint a nomination committee to help bring in more qualified candidates and narrow down the applicants they have. And if you're not sure where to look for a board of directors, many new nonprofits just start with their own network of friends, coworkers, and even volunteers. There is also a couple of free websites dedicated to helping you find the right people. For instance, volunteermatch.org is a really good one. Okay, so you have your board together. It's time to move on to step three, which is creating your bylaws. Your bylaws are simply legal documents stating a formal agreement between the organization and the owners on things like how the business is conducted and decisions are made. To create them, you'll have to bring in your board for your first board meeting. And generally, your bylaws should include the following eight areas. The first one is your purpose, which includes your mission and services and the type of nonprofit you are. Whether you will have membership and member conditions and dues, also what type of members can vote and the voting procedures themselves. When your annual meeting is and how often you will have ongoing meetings with members. Whether you will have a calendar year or a fiscal year. Who your board of directors, officers, committees, and corporate staff are. Any conflicts of interest and compensation agreements. What happens in the event of a dispute and other related topics. And finally, the official date your bylaws come into effect. And if you need some help writing out your bylaws, the website Nonprofit Ally has some great free templates that can help you out. So check out the description of this video and I will give a link to them there. Step four, filing your articles of incorporation with your state office. And your state office, this is the same place where you registered your name in step one. Now each state can have slightly different requirements on what you must file. So it really depends on where you are. But generally your articles include your corporation's name, your address, the name and address of your registered agent. And this is just a person designated to receive legal documents if your nonprofit happens to be involved in any legal issues. And by the way, you'll also need a registered agent in each state you plan on doing business in. For your articles, you'll also need a statement of your purpose, which is just a few sentences of who you are and what you offer. You will also need to say if you will have members or no members and the type of nonprofit you want to register as. For most nonprofits, this is just a 501c3. But depending on if you are a more specific organization like a fraternity or a chamber of commerce, this may vary. You will also need the duration of your corporation. So if you plan on incorporating indefinitely or just for a specific amount of time, you will also need the names and addresses of your board of directors and the name and address of the person or the people incorporating the nonprofit. Now, if you're getting a little lost in these steps, it's okay, don't worry. I've included a link in the description of this video with everything written out very plainly for you. So if you're getting lost, make sure you check that out. So the cost to file these articles varies by state, but it's usually around $100. In some cases, it can be even up to $250. And while you're filing your articles, it's also a good time to look into any state licenses or permits that you may require since each state has different regulations on things like auctions, raffles, construction activities, and whatnot. So now you've filed your articles of incorporation with your state office. Before you can continue on with the IRS, you will need what's called an employee identification number or an EIN, and that is step number five, your employee identification number. So this number is a nine-digit code that the IRS will use whenever they interact with your nonprofit. And even if you don't have any employees, you still need one regardless. And so this step is pretty easy to get. You can just apply for your EIN on the IRS website. In about 15 minutes, you just fill out a simple questionnaire with some questions about your nonprofit and who you are. And I'll include a link in the description of this video to exactly where to get your EIN on the IRS. And just note that when you are filling out your application online, you have to do it in the same 15-minute timeframe that they give you. So make sure that you just set aside some distraction-free time to do this. Okay, so at this point, you've chosen a name, you've gathered your board, you've created your bylaws, you've incorporated with your state office, and you've received your EIN. You finally have everything together to apply for tax-exempt status with the IRS. So step six is applying for tax-exempt status. So Form 1023 is the application form you need to fill out to be recognized as a tax-exempt organization with the IRS. There is also a form called Form 1023-EZ, which is a streamlined form you may be eligible for that is a little faster to fill out, but I will include links to both Form 1023 and Form 1023-EZ in the description of this video for you. And just to note, you will also have to pay a fee to apply with Form 1023, which is $600, unless you're able to apply for Form 1023-EZ, which is $275. Now, I'm only gonna cover Form 1023 in this video because that is the standard form, and it is 28 pages long and can take up to 100 hours to fill out, which is a lot of time. So you don't have any room for mistakes because you don't wanna have to start the process over again, and some nonprofits even hire a consultant or a lawyer to help them out with this process to make everything go smoothly. So I want to go over the gist of this form and give you some helpful tips when filling it out. Now, first of all, just think of this form as a basic business plan because that's essentially what it is. The IRS is making you fill it out, more or less to just prove that you can hit the ground running and you have the fundamentals in place to be a successful nonprofit, plus you're doing what they require to get tax-exempt status. In the form itself, the first thing you will have to do is state whether you are a corporation, an LLC, or an unincorporated association or trust. Next, you will also have to print out and attach a copy of all those bylaws you created earlier and their date of adoption, as well as a printout narrative of your past, present, and future planned activities as a nonprofit. And these are just things like the programs and services you create and what type of members you will have and how you will attract them. You will also need to include the names and financial arrangements or compensations of your officers, directors, employees, and any other stakeholders that you may have, plus attach copies of any leases, contracts, loans, and other agreements your organization has made with any other third parties, as well as detailed explanations of any negotiations you have made so far. You will also have to detail any products or services you intend on creating, as well as attach a description of any fundraising programs you have coordinated or that you plan to create in the future as well. So next comes the really, really tricky stuff, and that is the financial part, which can be especially tough. So the IRS wants you to fill out financial data for a three-year period, and they want to know things like taxes levied on your behalf, disbursements to members, any professional fees that you've incurred, plus a lot of other data. And this is why it is so important to start saving all those receipts and invoices for everything from day one. And even if you don't have any finances yet, it's a really good idea to start thinking about them now, because the IRS will require you to project estimate revenues and expenses into the future. And if you don't know where to start and you want to get a better idea of what this might look like for your organization, I recommend searching for public financial documents of a local nonprofit or a similar nonprofit to yours in your area and using that as an example. You will also have to project two years of revenue from your current tax year, and there are six main types of revenue that the IRS is looking for. And they include gifts, grants, and other contributions received, membership fees, investment income, taxes levied on your behalf, which I mentioned before, admissions, merchandise sold or services performed, and any other unrelated business income. So most people I know end up spending the majority of their time on the financial section. And once you've completed that financial section, there's only really one major section left and it may not even apply to you. So this last major section only applies to very specific types of nonprofits, such as organizations providing homes for the elderly or handicapped or low-income housing, grant scholarship or loan providing opportunities. If you're a church, a school, a hospital, and a few other very specialized types of organizations. So if you are one of these types of organizations, you will have to fill out a number of extra specific questions. But if you aren't one of these organizations, you are pretty much done with form 1023. So all that's left now is to fill out and attach any additional applicable forms to your type of organization. There's, for instance, form 8821, which is about tax information authorization, or there's a form about power of attorney, or another form about elections, just any forms that may be specifically applicable to your nonprofit. And at the end, all you have to do is enter your EIN number on the bottom of the form. And then there's just a basic checklist to make sure you filled out everything properly. And that is that. Now, like I said before, this form is very complex and takes a lot of time to fill out. And many people end up hiring a professional to help them do this. But if you do end up completing it on your own and you need some help, there is a really great free resource called form1023.org that takes you through each part of the form in much greater detail with a lot of helpful tips along the way. And you may also be able to get some pro bono legal help from your local bar association. So make sure you just check with them first to see if you can get that too. Plus, it's also a really good idea to check your state's nonprofit association and connect with someone there. They should be very familiar with helping new nonprofits get their tax exam status. Plus, you'll wanna become a member to access their resources and networking opportunities as well. So once you send your application in, there's really no telling how long it will take to get approved. The IRS recommends getting in touch with them if you don't hear from them for about 60 days. But I've known some people to take longer or shorter. It really just depends. So that's it. Congratulations on applying to become a nonprofit. You probably wanna take a really nice celebratory break because this process can take so much work. Now, there's just one more thing that you should be aware of and that is how to remain in compliance with the IRS so you keep your tax exempt status. After you receive your tax exempt status from the IRS, you must complete a form called Form 990 every single year, which makes your financial records public. And this form is a 12-page document outlining all of your financials from the year, things like grants, revenues, compensation, and other details. Now, of course, you don't have to worry about this until after you receive your status, but it's a good idea to start thinking about it now and a really good reason to keep solid track of your financials too. Okay, now that's it. Congratulations, you've applied to become a fully tax exempt nonprofit in the US. And if you want even more tips to start your nonprofit successfully, I've put together a completely full guide with things like how to set up your office on an absolutely shoestring budget, like where to find free computer equipment and software, how to hire your board, the best way to find and nurture supporters, and I've included a link to this guide in the description of this video, so I really hope you check it out. And if you're planning on creating a membership type of organization, you can get a free 30-day trial of Wild Apricot, our software used by over 25,000 membership organizations in the US, which makes it easy to attract, manage, and retain members and finances. And I've included a link to that 30-day trial in the description of this video as well. And that's all for now. If you'd like more videos on how to grow a successful nonprofit, please like and subscribe.