How to Start a Nonprofit

The work divides into two halves that people constantly conflate. A state makes your organization exist. The IRS makes it tax exempt. They are separate applications to separate governments, and the order is not negotiable.

What follows is the sequence, with what each step costs and how long it actually takes.

Before you file anything, ask whether you should

There are already well over a million nonprofits in the United States, and the honest question is whether the work you want to do needs a new one.

Three alternatives are worth considering first. Joining an existing organization doing the same work is faster and usually more effective. Fiscal sponsorship lets you run a project under an existing 501(c)(3)’s exemption, taking deductible donations from day one with no filing fees. And for a small, informal, time-limited effort, an unincorporated association may be all you need.

Form a nonprofit when you expect the work to outlast your involvement, when you need to hold assets or employ people in the organization’s own name, or when funders require it.

Step one: the name

Check availability in your state’s business registry, which is usually a free online search. Then run a federal trademark search, because a state registry only checks its own state and will happily approve a name someone else owns nationally.

Some states let you reserve a name for a small fee while you prepare the rest. Worth doing if your filing is weeks away.

Step two: articles of incorporation

This is the filing that creates the organization. It goes to your Secretary of State or equivalent, and costs between roughly $8 in Kentucky and $226 in Maryland, with most states between $20 and $100.

Two clauses matter more than the rest, and both are there for the IRS rather than the state. A purpose clause limiting the organization to exempt purposes, and a dissolution clause committing remaining assets to another exempt organization if you close. Filing without them is the most common reason an otherwise sound exemption application comes back.

Most states publish a fill-in template. Those templates satisfy state law but do not always include the IRS language, so check before you assume.

Step three: your board and bylaws

Most states require three directors. Roughly a third allow as few as one, including Arizona and Delaware, and New Hampshire requires five. Check your own minimum, then recruit past it, because a board sitting exactly on the statutory floor loses quorum the moment somebody resigns.

Bylaws decide who can call a meeting, what counts as a quorum, how directors are elected and removed, and who can sign. They are read properly during a disagreement, which is the worst possible time to discover they say something unworkable.

Hold a first meeting, adopt the bylaws, appoint officers, and record it in minutes. Those minutes are a real document that banks and funders will ask for.

Step four: the EIN

An Employer Identification Number is free, applied for online, and issued immediately. You need it before a bank will open an account, and before you can file anything with the IRS.

Apply directly at irs.gov. Services charging for this are charging for a free government form that takes about ten minutes.

Step five: apply for exemption

This is where the money and the waiting are.

Form 1023-EZ costs $275. Three pages, filed online. You qualify only if gross receipts have been at or under $50,000 in each of the past three years and are projected to stay there for the next three, plus other conditions. The IRS issues 80% of these determinations within 22 days.

Form 1023 costs $600. Dozens of pages with a narrative description of activities, a projected budget, and your governing documents. It takes months, with published estimates ranging from around six to closer to twelve depending on who you ask.

Do not choose the EZ purely because it is cheaper. If you genuinely expect to exceed $50,000 you do not qualify, and attesting otherwise on a federal form is not a saving.

Step six: register to solicit donations

Most states require charitable solicitation registration before you ask their residents for money. It is a separate filing from incorporation, with its own fee and annual renewal, usually handled by the Attorney General rather than the Secretary of State.

This is the step people skip, and the one that produces unpleasant letters later.

What happens after approval

Your determination letter is the document everyone will ask for. Keep it somewhere permanent and somewhere findable.

Then the annual cycle starts: a federal return every year without exception, a state annual report in most states, and charitable registration renewal. Miss the federal return three years running and exemption is revoked automatically.

A realistic timeline

Steps one to four can be done in a fortnight if you are organised. The EIN is immediate. Then you wait on the IRS: about three weeks for most 1023-EZ filings, months for the full application.

If you need to receive deductible donations by a fixed date, work backwards from it, and consider fiscal sponsorship to cover the gap.

The six steps, with cost and time

The mistakes that cost most

• Assuming incorporation made you tax exempt. It did not. Until the IRS says otherwise your corporation is taxable, and your donors cannot deduct with certainty.
• Articles missing the purpose and dissolution clauses. The most common reason a sound application comes back. State templates often omit the IRS language.
• Copying bylaws without reading them. You will discover what they say during your first disagreement, which is the worst possible time.
• Skipping charitable registration. Separate from incorporation, required by most states before you ask anyone for money, and penalties exceed the fee you avoided.
• A board of relatives. Legal in most states, but it raises questions on the application and again with every funder afterwards.
• Filing the 1023-EZ when you do not qualify. Attesting to a receipts projection you do not believe is not a shortcut, it is a false statement on a federal form.

What to have ready before you start

Gathering these first turns the process from weeks of back and forth into an afternoon of form filling.

• A one paragraph description of what the organization does, in plain language. This becomes your purpose clause and your IRS narrative.
• Names, addresses and roles for your initial directors.
• A projected budget for the first year, and for two more if filing the full 1023.
• A registered agent and a physical address in your state of incorporation.
• Your chosen fiscal year end. It sets your filing deadline permanently, so pick the point when your books are quietest.

Your first year, after the letter arrives

Approval is the start of an annual cycle, not the end of a project. The first twelve months set habits that either hold or quietly fail.

• Open a bank account in the organization’s name, using your EIN and a board resolution naming signatories. Never run organizational money through a personal account, even briefly.
• Set up bookkeeping before there are transactions to reconstruct. A spreadsheet is fine at first, but start it on day one.
• Diarise the annual return for the fifteenth day of the fifth month after your fiscal year end, with a reminder a month ahead, in a shared calendar rather than one person’s.
• Diarise your state renewals separately, because filing your federal return triggers nothing at state level.
• Adopt a conflict of interest policy if you have not already. The full Form 990 asks whether you have one.
• Send acknowledgements promptly. Anything at or above $250 needs written substantiation, per contribution rather than per year.

Reference information, not legal advice. Formation rules vary by state and change. Check your state registry and consider a nonprofit attorney before filing.

Questions people ask

How long does the whole process take?

Two to three weeks of your own work, then the IRS wait.

Naming, incorporating, adopting bylaws and getting an EIN can realistically be done in a fortnight. The EIN is issued immediately online.

Then it depends which form you file. The IRS issues 80% of Form 1023-EZ determinations within 22 days. The full Form 1023 takes months, with published estimates ranging from roughly six to twelve. Plan for the longer end and start earlier than feels necessary.

Can I be paid by a nonprofit I founded?

Yes, and many founders are. The constraint is not on being paid, it is on how the decision is made.

Compensation must be reasonable, meaning comparable to what similar organizations pay for similar work. The protection is procedural: the board approves it, the comparable data relied on is documented, and the person being paid is out of the room for the vote.

Where founders get into trouble is setting their own salary with a board of family members. That is the pattern the IRS looks for, and the penalties fall on both the individual and the directors who approved it.

Do I need a lawyer?

Not for a straightforward small organization filing the 1023-EZ. Most people do it themselves.

Where legal help pays for itself: significant earned revenue that might look like a commercial trade, a 501(c)(3) structured alongside a 501(c)(4), activities in a regulated area such as healthcare or housing, or a full Form 1023 when you have never written a narrative description of activities.

If you buy one hour, spend it on bylaws review rather than form-filling. Bylaws are the document that gets read during a dispute.

Can my board be made up of family members?

Legally, often yes. Practically, it is a problem you are choosing to have.

Most state statutes do not prohibit related directors. The IRS sets no absolute bar either, but it expects a board capable of independent judgement, and the full Form 1023 asks about relationships between directors.

A board of relatives raises questions on the application, raises them again with funders, and removes the check that makes governance meaningful. If you start that way, plan to recruit unrelated directors early.

What is the difference between incorporating and getting 501(c)(3)?

Different governments, different things.

Incorporating is a state filing that creates a nonprofit corporation. At that moment your organization exists and is fully taxable.

501(c)(3) is federal recognition of tax exemption, granted by the IRS after a separate application and fee. It is what makes donations deductible.

You cannot skip the first and go straight to the second. Plenty of founders discover months in that incorporating did not make them tax exempt.

Can we accept donations before the IRS approves us?

You can accept money. Whether donors can deduct it is the harder question.

If your application is approved, exemption can apply retroactively to the date of formation in many cases, which would cover donations received in the gap. That retroactivity has conditions, including filing within the required window.

The practical risk is that you promise deductibility, the application is denied or delayed past the window, and you have to go back to donors. Safer options: say clearly that deductibility is pending, or take the money through a fiscal sponsor until your own determination arrives.

Which state should we incorporate in?

The one where you actually operate, in almost every case.

Incorporating in a cheaper state you have no presence in is usually a false economy. You will generally have to register as a foreign corporation where you really work, paying a second fee and filing a second annual report, and you may owe charitable solicitation registration there too.

The Delaware logic that applies to startups does not transfer. Nonprofits have no shareholders to please and no venture financing to structure for, so the advantages largely vanish while the dual compliance remains.

What if we get rejected?

Outright denial is uncommon. What usually happens is the IRS sends a request for more information, and applications fail by not answering it rather than by being refused.

The common causes are ordinary: articles of incorporation missing the purpose or dissolution clause, a narrative description too vague to show an exempt purpose, or a budget that looks like a commercial business.

User fees are not refunded if an application is denied or withdrawn, which is the argument for getting it right first time rather than treating a filing as a cheap experiment.

This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.