15 Actionable Steps on How Do You Start a Nonprofit Organization
Free Download – 501(c)(3) Tax-Exempt Status Application Checklist for how do you start a nonprofit organization. Download the sample Bylaws for nonprofit organization. If you’ve ever asked yourself, “how do you start a nonprofit organization?” — you’re in the right place. It’s an exciting journey filled with purpose, but also some important steps that need care and attention. Whether your dream is to help your local community, support environmental causes, or create an arts foundation, knowing exactly what to do is essential.
Starting a nonprofit is not just about filling out paperwork — it’s about creating something meaningful and sustainable. So, let’s walk through how do you start a nonprofit organization step-by-step, with practical advice and clarity.
Step 1: Define Your Mission and Vision — The Heart of Your Nonprofit
The first step when wondering how do you start a nonprofit organization is to get crystal clear about why your nonprofit exists. What problem are you solving? Who will benefit? Your mission is your nonprofit’s heartbeat — it guides everything from funding to programs.
Actionable tip: How do you start a nonprofit organization: Write a one-sentence mission statement. For example: “Our nonprofit provides free tutoring to underserved youth in our city.” Keep it simple, focused, and inspiring.
Step 2: Conduct Market Research — Know Your Landscape
Before moving forward, understand what other nonprofits do in your field. Is there a gap you can fill? How can you collaborate instead of compete? Research helps confirm the need for your nonprofit and shapes your unique approach.
Actionable tip: How do you start a nonprofit organization: Talk to community members, potential beneficiaries, and other nonprofits. Use surveys or informal interviews to gather insights.
Step 3: Choose a Name — Your Nonprofit’s Identity
Your nonprofit’s name should reflect your mission and be memorable. Importantly, it must be unique — you don’t want confusion with another organization.
Actionable tip: How do you start a nonprofit organization: Check your state’s business registry and do an online search to ensure your preferred name isn’t taken. Also, check domain name availability for your website.
Step 4: Recruit a Board of Directors — Build Your Team of Champions
Every nonprofit needs a board — a group of people who provide oversight, guidance, and legal accountability. Your board members should be passionate about your cause and bring diverse skills like fundraising, finance, or legal knowledge.
Actionable tip: How do you start a nonprofit organization: Recruit at least three members (varies by state) who are committed to attending meetings and supporting the nonprofit’s growth.
Step 5: Incorporate Your Nonprofit — Make It Official
To legally establish your nonprofit, you must file Articles of Incorporation with your state government. This creates your organization as a legal entity and protects board members from personal liability.
Actionable tip: How do you start a nonprofit organization: Use your state’s nonprofit corporation forms (often available online). Include your nonprofit’s name, purpose, and registered agent.
Step 6: Develop Bylaws — Set Your Ground Rules
Bylaws are the internal operating manual for your nonprofit. They outline how your board will operate, hold meetings, vote on decisions, and handle conflicts of interest.
Actionable tip: How do you start a nonprofit organization: Draft clear bylaws that cover key areas like board member roles, meeting frequency, and how to amend the bylaws. Use templates from trusted nonprofit resources but customize to fit your mission.
Step 7: Hold an Organizational Meeting — Get Your Board Working
Once your bylaws are ready, hold a first official board meeting. Approve the bylaws, elect officers (like chairperson and treasurer), and adopt necessary policies such as conflict of interest and whistleblower policies.
Actionable tip: How do you start a nonprofit organization: Prepare an agenda ahead of time and keep minutes of the meeting — these are important legal records.
Step 8: Obtain an Employer Identification Number (EIN) — Your Nonprofit’s Social Security Number
An EIN is essential to open a bank account, hire employees, and file tax documents. It’s a free application through the IRS and takes just minutes.
Actionable tip: How do you start a nonprofit organization: Apply online at the IRS website and keep the confirmation letter safely.
Step 9: Register with Your State — Follow State Rules
Many states require nonprofits to register before soliciting donations or fundraising. This step helps maintain transparency and public trust.
Actionable tip: How do you start a nonprofit organization: Check your state’s charity registration requirements and file any necessary forms or annual reports.
Step 10: Apply for Federal Tax-Exempt Status — The 501(c)(3) Application
Getting tax-exempt status with the IRS means your nonprofit won’t pay federal income tax, and donors can deduct their contributions. This is a crucial milestone when figuring out how do you start a nonprofit organization.
Actionable tip: How do you start a nonprofit organization: Choose the right form:
- Form 1023 (detailed, for larger nonprofits)
- Form 1023-EZ (simplified, for smaller nonprofits)
Complete the form carefully, including your mission, programs, finances, and governance documents. See below for more detailed information and free download of the 501(c)(3) checklist.
Step 11: Apply for State Tax Exemptions — Beyond the IRS
Once you get federal tax exemption, apply for state sales, income, and property tax exemptions. These vary by state but can save significant money.
Actionable tip: How do you start a nonprofit organization: Contact your state’s tax department or visit their website for specific forms and requirements.
Step 12: Set Up Financial Systems — Keep Your Books in Order
Good financial management builds trust with donors and keeps you compliant with laws. Open a bank account in your nonprofit’s name and set up accounting software or spreadsheets.
Actionable tip: How do you start a nonprofit organization: Separate personal and nonprofit finances completely. Plan for regular bookkeeping and quarterly reviews.
Step 13: Develop a Fundraising Plan — Secure Sustainable Funding
Fundraising is the lifeblood of nonprofits. Your plan should identify sources like grants, individual donors, events, or membership fees.
Actionable tip: How do you start a nonprofit organization: Create a calendar of fundraising activities and set realistic goals. Remember to thank donors promptly!
Step 14: Create Marketing and Outreach Strategies — Spread the Word
To build support, you need people to know your nonprofit exists and why it matters. Use social media, newsletters, websites, and local media.
Actionable tip: How do you start a nonprofit organization: Develop a simple brand — logo, colors, messaging — and keep your communication consistent.
Step 15: Launch Programs and Evaluate Impact — Deliver and Improve
Now comes the rewarding part — serving your community. But always measure your impact so you can improve and tell your story to supporters.
Actionable tip: How do you start a nonprofit organization: Set clear, measurable goals for your programs and collect feedback regularly.
Frequently Asked Questions
1. What is the very first step in starting a nonprofit organization?
The foundational step when beginning a nonprofit is to clearly define its mission and vision. This involves identifying the specific problem your organization aims to solve, who will benefit from its services, and what overarching goal will guide all its activities. Your mission statement should be a concise, inspiring one-sentence summary that acts as the nonprofit’s guiding heartbeat.
2. What are the key legal and structural requirements to officially establish a nonprofit?
To legally establish a nonprofit, you must first incorporate it by filing Articles of Incorporation with your state government. This formally creates your organization as a legal entity and provides liability protection for board members. Following incorporation, you need to develop comprehensive bylaws, which serve as the internal operating manual outlining how the board will function, conduct meetings, vote, and manage potential conflicts. An organizational meeting should then be held to approve these bylaws and elect officers. Additionally, obtaining an Employer Identification Number (EIN) from the IRS is crucial for opening a bank account and filing tax documents.
3. Why is obtaining 501(c)(3) tax-exempt status so important for a nonprofit?
Obtaining 501(c)(3) tax-exempt status from the IRS is a critical milestone because it exempts your nonprofit from paying federal income tax. More importantly, it allows donors to deduct their contributions, which is a significant incentive for fundraising. This status signifies that your organization operates exclusively for charitable, educational, or other public benefit purposes as defined by the IRS.
4. What is the "narrative description" required for the 501(c)(3) application, and what should it include?
The narrative description is a crucial part of the 501(c)(3) application that provides the IRS with a detailed understanding of your nonprofit’s activities and how they fulfill its charitable mission. It should clearly explain:
- What you do: Specific programs and services offered.
- Who you serve: Your target audience.
- How you do it: Methods and strategies used.
- Where and when: Logistics of your programs.
- Why it qualifies as charitable: How your activities align with IRS requirements for public benefit. It also often includes your mission statement, governance structure, and plans for fundraising.
5. What types of organizations can qualify as nonprofits, and how do they typically generate revenue?
Nonprofits encompass various types, including foundations (which typically give grants), charitable organizations (that directly serve communities), social advocacy groups (focused on policy and social change), religious nonprofits, and professional/trade associations. While their specific activities differ, their revenue generation commonly includes donations from individuals, grants from foundations and governments, membership dues, income from fundraising events, and sometimes fee-for-service programs, all aligned with their tax-exempt purpose.
6. What are some crucial steps involved in the 501(c)(3) application process beyond the narrative?
Beyond the narrative, the 501(c)(3) application (Form 1023 or 1023-EZ) requires providing detailed information on various aspects of your nonprofit. This includes identification details, confirmation of your organizational structure (e.g., corporation), and ensuring your Articles of Incorporation contain specific charitable purpose and dissolution clauses. You must also disclose compensation information for key employees and board members, provide financial data (actual or projected), and submit supporting documents like bylaws, conflict of interest policies, and a fundraising plan. A non-refundable filing fee is also required.
7. What does "maintaining tax-exempt status" entail after a nonprofit is approved?
After a nonprofit receives its tax-exempt status, it’s crucial to maintain compliance to avoid losing this status. This primarily involves filing an Annual Return (Form 990 or 990-EZ) with the IRS. Additionally, nonprofits must check and adhere to their state’s reporting requirements, which may include annual or biennial reports and fundraising registrations. Accurate record-keeping of financial transactions, donor lists, and board meeting minutes is also essential for transparency and compliance.
8. What factors can increase the success rate of a nonprofit's tax-exempt status application?Item #8
To maximize the chances of successful tax-exempt status approval (which is typically around 70-80% for complete and mission-aligned applications), several factors are key: being very clear and specific about your charitable purpose, submitting all required documentation accurately and completely, avoiding activities that generate excessive unrelated business income, ensuring your organizing documents (articles and bylaws) align with IRS rules, and considering seeking expert help from an attorney or tax professional specializing in nonprofit law.
What’s the Success Rate for Tax-Exempt Status and How to Maximize It?
When you ask how do you start a nonprofit organization, you’ll quickly learn the importance of IRS approval. The good news? Around 70-80% of nonprofits get approved if their application is complete and mission-aligned.
How do you start a nonprofit organization, and how to improve your chances for success:
- Be very clear and specific about your charitable purpose.
- Submit all required documentation.
- Avoid activities that generate excessive unrelated business income.
- Make sure your organizing documents (articles and bylaws) align with IRS rules.
- Seek expert help if needed, especially for the Form 1023 application.
Types of Nonprofits and How They Generate Revenue and Fundraising
Throughout your journey of how do you start a nonprofit organization, remember there are different types:
- Foundations: Often funded by a family or corporation, they give grants rather than run programs.
- Charitable organizations: These directly serve communities.
- Social advocacy groups: Work on policy and social change.
- Religious nonprofits: Faith-based and tax-exempt.
- Professional and trade associations: Support members of a profession.
Revenue generation varies by type but typically includes donations, grants, membership dues, event income, and sometimes fee-for-service programs.
How do you start a nonprofit organization: Applying for Tax-Exempt Status: Why You Need to Provide a Narrative.
What is 501c3? Understanding Nonprofit Tax-Exempt Status
When you apply for 501(c)(3) tax-exempt status with the IRS, one of the most important parts of your application is providing a detailed narrative description of your nonprofit’s activities. This narrative is crucial because it gives the IRS a clear understanding of your organization’s mission, programs, and operations, which ultimately helps them determine whether you qualify for tax-exempt status.
Here’s a breakdown of why the narrative is necessary and what you need to include:
Why the IRS Needs a Narrative
The IRS wants to ensure that your nonprofit operates exclusively for charitable purposes, which is one of the primary requirements for obtaining tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. To assess this, they need to see exactly how your organization will fulfill its charitable mission and what specific activities you will undertake to achieve your goals.
The narrative provides the IRS with a comprehensive overview of:
- What you do (your programs and services),
- Who you serve (your target audience),
- How you do it (your methods and approach),
- Where and when you do it (the logistics of your programs),
- Why it qualifies as charitable (why your activities are aligned with IRS requirements).
By providing this narrative, you demonstrate that your nonprofit is truly focused on serving the public good and that your activities are consistent with the charitable, educational, or scientific purposes outlined by the IRS.
What to Include in the Narrative
The IRS is looking for clear, factual descriptions of your nonprofit’s programs, governance, and planned activities. Here’s a breakdown of the key elements to include:
- Mission Statement
Your mission statement should summarize the overall goal of your nonprofit. For example, “Our mission is to provide free educational resources to low-income children, helping them succeed academically.” - Program Descriptions
Clearly describe the specific programs and activities your nonprofit will run. For example, if you plan to offer after-school tutoring, explain how often it will occur, who will provide the services (staff, volunteers), and how the program aligns with your mission. - Target Audience
Define who will benefit from your services. For example, “We serve children ages 6-18 in low-income neighborhoods who are at risk of falling behind in school.” - Methods and Strategies
Explain how your nonprofit will achieve its goals. Will you use trained professionals or volunteers? Will you offer workshops, classes, or direct support? The IRS wants to see that your methods are well-planned and sustainable. - Geographic Area
Specify where your nonprofit operates. For example, “We operate within [City/County], serving underserved neighborhoods.” - Governance and Structure
Outline your nonprofit’s structure. This includes the role of your board of directors, the decision-making process, and how you will manage the day-to-day operations. Make sure to mention that your organization will be operated exclusively for charitable purposes. - Fundraising and Revenue
While not all nonprofits are required to fundraise immediately, it’s essential to explain how you plan to fund your programs (e.g., donations, grants, events). Be clear that you will only engage in activities that are in line with your nonprofit status, and avoid mentioning income from unrelated business activities. - Compliance with IRS Rules
The IRS requires nonprofits to be organized and operated exclusively for a charitable purpose, which is why the narrative must show that your activities are not for private benefit or personal gain. Be sure to highlight that your programs meet IRS standards for public benefit.
Example of What the Narrative Might Look Like
How do you start a nonprofit organization? Here’s an example of what a narrative might look like for a nonprofit that provides after-school tutoring:
Mission Statement:
Bright Futures Tutoring Foundation is dedicated to improving educational outcomes for underserved children by providing free tutoring services that promote literacy, numeracy, and academic success.
Program Descriptions:
- After-School Tutoring Program: Our primary program offers tutoring in math, reading, and science to children ages 6-18, Monday through Thursday, from 3 pm to 6 pm. Trained volunteer tutors and certified educators provide one-on-one or small group instruction.
- Parent Workshops: Every quarter, we offer workshops to educate parents on how to support their children’s academic growth at home. These workshops focus on topics such as literacy activities, homework support, and effective communication with teachers.
- Summer Learning Camps: During the summer, we host a four-week educational camp to prevent the “summer slide” in academic achievement. The camp integrates STEM activities, arts, and field trips to engage students in learning.
Target Audience:
Our services are available to children in low-income neighborhoods who are struggling academically. We focus primarily on families who earn less than 200% of the federal poverty level.
Geographic Area:
Our programs are based in [City/County], with plans to expand to nearby underserved areas as funding allows.
Methods and Strategies:
Our tutoring sessions are delivered by a mix of certified teachers and trained volunteers, who undergo a background check and orientation. The curriculum is based on local educational standards and tailored to the specific needs of each student.
Fundraising and Revenue:
We will fund our operations through a combination of private donations, foundation grants, and fundraising events, such as an annual charity gala. We also plan to establish a small endowment to ensure long-term sustainability.
Why This Narrative is Effective
- Clear Mission: The mission statement sets a clear and focused purpose, which is essential for tax exemption.
- Specific Programs: Describing specific programs helps show the IRS that your nonprofit is operational, with clear goals and plans.
- Target Audience and Geographic Area: This demonstrates that you’re serving a public benefit, which is one of the IRS’s primary concerns.
- Sustainability: Explaining your fundraising plan gives the IRS confidence that your nonprofit will be financially viable.
- Governance: While not explicitly mentioned in this excerpt, including governance details such as board responsibilities and oversight (as outlined in your bylaws) is also essential in the full narrative.
Key Takeaways- 501(c)(3) tax-exempt status for Writing Your Narrative
- Be clear and specific about your nonprofit’s activities, who benefits from them, and how they align with charitable purposes.
- Show public benefit. Your nonprofit must serve the community at large, not just private individuals or businesses.
- Document your programs. The IRS wants to see how your nonprofit will operate in a structured, consistent way.
- Avoid unrelated business activities. Only engage in activities that support your charitable mission.
- Emphasize long-term sustainability. Demonstrate that you have a solid plan for funding and maintaining your programs.
Providing a thorough, well-crafted narrative will greatly improve your chances of obtaining 501(c)(3) tax-exempt status. The IRS needs to understand that your nonprofit is established for a legitimate charitable purpose and is operated in compliance with the rules that govern tax-exempt organizations.
Tax-Exemption Application Checklist. This checklist will help ensure you don’t miss any critical steps and documentation required for the application.
501(c)(3) Tax-Exemption Application Checklist
General Requirements
- Nonprofit Name: Ensure your organization’s name is unique and complies with your state’s rules.
- Mission Statement: Clearly define your nonprofit’s mission and objectives.
- Purpose of Organization: Verify your nonprofit’s purpose aligns with IRS-approved categories (e.g., charitable, educational, religious).
- Incorporation: Ensure your organization has filed Articles of Incorporation with your state’s Secretary of State (this creates your legal entity).
Organizational Documents
- Bylaws: Draft and approve bylaws that govern how your nonprofit will operate. These should include the number of directors, voting procedures, and meeting schedules.
- Conflict of Interest Policy: Ensure your board members are free from conflicts of interest in their duties.
- Board of Directors: Confirm that your board is established with at least three unrelated members (depending on your state requirements).
Financial Setup
- Employer Identification Number (EIN): Apply for an EIN from the IRS (required for filing taxes and opening a bank account).
- Bank Account: Open a separate bank account for your nonprofit.
- Accounting System: Set up an accounting system to track income, expenses, and donations. Consider using accounting software like QuickBooks or Xero.
IRS Form 1023 Application
- Form 1023 or 1023-EZ: Complete the correct form (Form 1023 for larger nonprofits or Form 1023-EZ for smaller organizations).
- Form 1023 (long version)
- Form 1023-EZ (short version)
- Part I — Identification of Applicant: Provide basic information about your nonprofit (name, address, EIN).
- Part II — Organizational Structure: Confirm that your nonprofit is organized as a corporation or other eligible entity and explain your structure.
- Part III — Required Provisions in Your Organizing Document: Ensure your Articles of Incorporation contain the required language for 501(c)(3) status.
- Charitable Purpose Statement
- Dissolution Clause
- Nonprofit Nature Clause (i.e., no private benefit)
- Part IV — Narrative Description of Your Activities: Provide a clear and detailed narrative describing:
- Your nonprofit’s mission
- Programs and services offered
- How your activities advance charitable purposes
- Target audience and geographic area served
- Governance structure and management
- Part V — Compensation Information: Provide details on compensation for your key employees and board members.
- Part VI — Financial Data: Include financial statements (actual or projected) for your nonprofit.
- Balance sheet
- Revenue projections
- Expense projections
Supporting Documents
- Organizational Documents:
- Articles of Incorporation (filed with your state)
- Bylaws
- Conflict of Interest Policy
- Any additional state registration documents (if applicable)
- Financial Statements: Attach your most recent financial statements or, if a new nonprofit, provide budget projections for the next 3-5 years.
- Fundraising Plan: Provide a brief description of how your nonprofit plans to raise funds (e.g., through grants, donations, or fundraising events).
- Proof of Existence (Optional): Attach any documents proving the existence of your nonprofit, like meeting minutes or correspondence that show your nonprofit is already operational.
Filing Fees
- Application Fee: Pay the filing fee (Form 1023: $600 or Form 1023-EZ: $275).
- Confirm the payment method and submit with your application.
Post-Filing Steps
- Send Application: Mail your completed Form 1023 (or 1023-EZ) to the IRS at the correct address (usually the IRS Service Center).
- Wait for IRS Response: Be prepared for a wait of several months. You’ll receive a determination letter from the IRS.
- If the IRS requests additional information, respond promptly with the requested documents.
Maintaining Tax-Exempt Status for your nonprofit organization
- Annual Filing: After receiving your tax-exempt status, you must file an Annual Return (Form 990 or 990-EZ) with the IRS.
- Form 990 for organizations with gross receipts over $200,000 or total assets over $500,000
- Form 990-EZ for smaller organizations
- State Reporting: Check your state’s requirements for annual or biennial reports, including fundraising registration if applicable.
- Record Keeping: Maintain accurate records of financial transactions, donor lists, and board meeting minutes.
Final Checklist Review
Before submitting your Form 1023, double-check everything to ensure:
- All required sections of the Form 1023 are completed.
- Your mission and activities are clearly defined and aligned with 501(c)(3) criteria.
- Your supporting documents are attached and complete.
- You have paid the correct application fee.
Tips for a Smooth 501c3 Application Process on How do You Start a Nonprofit Organization
- Double-check for accuracy: Any missing or inaccurate information can delay your approval.
- Consult a professional: If you’re unsure about any part of the application, consider hiring an attorney or tax professional specializing in nonprofit law.
- Be patient: The IRS may take several months to review your application and issue a decision.
Conclusion
If you’re wondering how do you start a nonprofit organization, know that it’s both a practical and inspiring journey. Follow these 15 steps with care and passion, and you’ll build a strong foundation for your cause. Remember to download the free 501(c)(3) Tax-Exempt Status Application Checklist and the Sample ByLaws for NonProfit Organization.
