Maybe you have already established a nonprofit corporation, or you are considering creating one to serve a purpose—a Mission—to improve the world in some significant way. There are two initial steps to the creation of a charity. The first step is to identify the Mission and to incorporate under your state’s nonprofit corporation law. Every state has one. It usually involves preparing and filing Articles of Incorporation with the Secretary of State or other appropriate state agency.

One common misconception is that incorporating under state law makes the nonprofit tax exempt under federal tax law.

It does NOT. The second step to obtain that status requires the filing of a lengthy and detailed form with the IRS to request a "favorable determination" that the nonprofit is tax exempt. In some cases, the IRS has a shorter form that the organization can file, but there may be advantages to filing the longer one even if the organization qualifies to file the shorter form, especially if the organization plans to seek funding from other charitable organizations.

The tax benefits that a tax-exempt nonprofit can obtain are often a major reason for setting one up. First, the nonprofit corporation itself is tax exempt. That means that whatever income is earned by the corporation, from grants and other fundraising to sales of t-shirts in an online store, is generally not taxed at either the federal or state level. Second, donations made by individuals to the nonprofit are generally tax deductible as charitable contributions. In many states, the nonprofit may also be exempt from other taxes, such as property and sales taxes. These can be extremely valuable financial benefits, and the IRS makes sure that the nonprofit is worthy of them. It does so, first, as described above, by requiring as a condition of initial tax-exempt status that the nonprofit apply for such status and receive approval from the IRS. Second, the nonprofit must file an annual information return with the IRS and detail its charitable activities and demonstrate that it met all the tax exemption requirements in operation over the past year.

Nonprofit Guru LLC doesn’t incorporate nonprofits or file for tax exempt status. There are many companies such as Legal Zoom and Rocket Lawyer that will incorporate a nonprofit in any state, and some will also file for tax exemption at least on the shorter form. A word of caution here. Whoever provides these services for you needs to know what they’re doing. For example, there are several very specific provisions that the IRS requires to be clearly stated in the Articles of Incorporation before they will issue a favorable determination that your nonprofit is tax exempt. As simple as this sounds, I have personal experience where the document preparation company would not have included them without being reminded. Failure to include them would have wasted time and money because the Articles of Incorporation would have had to have been amended by a new filing and payment of an additional fee to the state agency.

Since then, I have searched for and ultimately found a company that has the expertise and experience to provide these services “without a hitch”. Their name is Nonprofit Elite, and their website URL is www.nonprofitelite.com. Unlike the document preparation services, nonprofit incorporation and obtaining tax exempt status are their primary focus, not a side business to creating for-profit corporations and LLCs. They have helped over a thousand clients to get their nonprofits up and running and on the right track.