Making your 501(c)3 dreams a reality

Image courtesy of Housingwire

Image courtesy of Housingwire

When the idea for a nonprofit is still just a hint of an inkling in the back of your mind, you might be wondering how to make your dreams a reality. In the coming months, we’ll discuss ways to start your nonprofit and get it off the ground.

Your first and perhaps most important move involves becoming a 501(c)(3) nonprofit corporation. This means that the Internal Revenue Service (IRS) has approved your business as a tax-exempt, charitable organization. The definition of “charitable” is somewhat broad and can apply to a number of genres, from educational charities to scientific or religious ones to charities benefiting public safety. 

The process is somewhat lengthy; first, you must establish yourself as a corporation. This is done on the state level, generally through fairly straightforward paperwork. At the end of the process, you’ll have a federal Tax ID Number, which your employees and donors can use when filling out their taxes.

To become a 501(c)(3), you’ll then need to fill out form 1023 from the IRS, which, at 28 pages long, is pretty thorough and not exactly exciting. It’s a chance for the IRS to understand exactly what your nonprofit will be doing and to ensure there aren’t any conflicts of interest among your board of directors. With attachments, articles, lengthy explanations, and charts, your 1023 could expand to 50 pages or more. It’s a harrowing task, but it’s also a necessity.

So why go through this time-consuming and difficult process? The benefits are myriad. First and foremost, you’ll get valuable tax benefits, as you may be exempt from various state and federal taxes. You will also gain access to certain grants only available to 501(c)(3) organizations. Perhaps most importantly, being federally recognized as a nonprofit gives you clout and legitimacy; supporters, donors, employees, and participants will feel secure in their interactions with your organization. Oh, and as an added bonus, you get discounts on postage – time to get those fliers in the mail!

You may have also heard about Benefit Corporations, or B Corps. This is another certification an organization can obtain from certain states – but this one signifies that your group is a for-profit entity. It also means your organization is devoted to creating a positive impact on society – aside from, you know, making money. Ben & Jerry’s is a famous example of a for-profit B Corporation; while they make money on every tub of Phish Food, they also donate to various causes and focus on sustainability. To become a B Corp, your organization must pass a rigorous review and meet certain standards. It’s also very important that B Corps maintain transparency; their annual reports not only detail profits and losses, they also share the company’s social and environmental impacts. Many B Corps are certified by an organization called B Labs, which is itself a nonprofit dedicated to building up corporations who serve to do good in our world.

Whew! You may want to consult a lawyer to help you figure out exactly what sort of organization you’d like to become. Professionals can help with that daunting paperwork, too! No matter which way you slice it, once that hint of an inkling in the back of your mind blossoms into something bigger, it’s important to get it recognized and properly registered!