charities

If you have a passion for a cause, starting a charitable organization may be a step you are considering. But it’s not an easy process. It requires a lot of paperwork, fierce compliance and continual vigilance.

Charity Requirements

Charitable organizations are not to be created by anyone having a personal interest or stake in the organization. This means that shareholders, creators or any other private person cannot financially benefit from the organization. If anyone receives what the IRS calls an excess benefit transaction, they and those who agreed to the transaction will be taxed 25 percent of the transaction. If the transaction isn’t rectified within a certain period, a 200 percent tax is levied. Charity organizations do need to solicit donations on behalf of its cause. That’s why they are allowed to engage in some lobbying but activities are strictly limited. Any organization that tries to influence legislation or exceeds the amount of lobbying permitted could lose their tax exempt status.

How to Apply

Starting a 501c3
nonprofit organization is similar to creating a company. You need to find the right name and find out what your state naming convention requirements are. Some states require nonprofit organizations have Corp., Inc., or Ltd. in the name. Organizations need to have a strong mission statement that will be published on all sites and print publications. You will need an attorney to help you with your Articles of Incorporation, preferably one with nonprofit experience, who understands the ins and outs of filing the necessary papers.

Once you file your Articles of Incorporation with the state corporation office, you can apply for an FEIN, a federal employer identification number using Form SS-4. It’s a lot like a Social Security number because helps your organization to be identified when filing tax documents. Form 1023 gives nonprofits tax-exempt status and must include current and planned financial budgets.

Things to Remember

  • The number of board members is determined by the needs of the nonprofit. This takes a lot of thought and should be based on the qualifications of the individuals as well as their support of your mission.
  • By-laws indicate how the organization will run and needs to be done by a qualified lawyer
  • Fundraising needs to be done as required by law. You may need to get a permit and will need to make sure your tax documents reflect this paperwork. If there are any questions, it’s a good idea to contact the Attorney General of your state
  • Nonprofits send out a lot of mails, which can be expensive if done regularly. Nonprofits can apply for a special permit that will give them reduced postage on bulk mailing.
  • Make sure your domain name and logo are secured during the process. You may need to secure a copyright or trademark to distinguish your organization from others.

Filing the paperwork to be a non-profit organization is just the beginning of the work. Charities need to keep full and proper paper documents for a number of years just in case there are any questions. It’s a good idea to have a storage plan in place.

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