Starting Your Own Nonprofit
Often, people find the concept of a nonprofit confusing. That’s why we’ve created this guide. We want our readers to have a better understanding of how nonprofits work, and how they can help you improve your capabilities.
This guide will give you an overview of the core components of a nonprofit, along with the various benefits associated with them. It will also provide you with certain drawbacks that you may want to consider. Read ahead!
What is a Nonprofit?
A nonprofit receives its name from its purpose: not to profit. A nonprofit organization doesn’t distribute its profits to shareholders. Instead, the excess revenue is used to reinvest into the organization. Nonprofits are typically charitable organizations that aim to fight for a social cause – they contribute a lot to Western society. But nonprofits don’t have to be charitable, they can also be used to spread awareness about a certain subject, or research a particular point of view.
Instead of answering to shareholders, nonprofits answer to donors and communities. There are no investors seeking returns on their capital. For this reason, it is important that nonprofits are extremely transparent about their expenditure. Nonprofits receive tax exemptions that ensure they don’t pay any tax on the money that they receive. This allows them to better use their funds to further their cause. The purpose of a nonprofit is to fully utilize revenue to achieve a particular goal that has social value.
Why Start a Nonprofit?
Starting a nonprofit should be a decision motivated by a certain cause. If you are passionate about a cause that you feel is important, starting a nonprofit to improve the issue is one of your best options. It can be a charitable cause, or it can be a social or religious cause – regardless, it should be something you feel will improve society.
Examples of Nonprofits
There are various types of nonprofit organizations around the country. We will explore some common examples in more detail below:
This foundation helps provide sick children with opportunities to experience things that they wish for. It provides an escape for families and children who are trying to deal with serious illnesses. This organization has been extremely successful at making many children’s dreams come true.
National Public Radio is a nonprofit organization that reinvests its money into improving its platform. Its aim is to educate the public with nonpartisan news and information.
Boy Scouts of America
The Boy Scouts of America is a nonprofit organization that aims to improve the lives of young boys around the country. This youth organization provides practical outdoor and team-building experiences for young boys in the United States. It is one of the biggest scouting networks on earth!
So, now that you have a solid understanding of what nonprofits are, what are the true advantages of incorporating as a nonprofit? Nonprofits receive 501(c)(3) tax certification. Below are the advantages associated with this:
- Tax Exempt – You are exempt from paying any federal taxes on the earnings that your nonprofit receives. Any funds you raise will be completely tax free.
- Discounted Mail – You will receive discounted mail services from the U.S. Postal Service.
- Further Investment – You can use discounts and exemptions to spur further investment in your company – you can ensure that all money received goes into helping your cause.
- Tax Deductible Contributions – Contributions to your organization are tax deductible – this helps you incentivize donations from the public.
While there are endless advantages to starting a nonprofit, there are still a couple drawbacks. We’ll explore them below:
- Strict Guidelines – You have to adhere to strict guidelines to ensure that your organization is for charitable or socially beneficial purposes.
- No Lobbying or Campaigning – Your nonprofit will not be able to campaign or lobby political events or elections.
So, what’s the process for setting up a nonprofit? It’s simpler than you think – although it does take some time. Check out our step-by-step guide below:
Register as a nonprofit in the state that you will be conducting business in. You can find information on the SBA website about each state’s guidelines.
Next, file IRS Form 1023 and IRS Form 990. The first is a request to be recognized by the IRS as a nonprofit, the second is titled a “Return of Organization Exempt from Income Tax.” Keep in mind that these forms must be filed within 27 months of you starting your organization – it’s important that you get the ball rolling if you’ve already incorporated.
Now it’s time to wait. The decision can take serious time in certain instances, but you should be able to find out within a few months of applying. If all goes to plan, you’ll receive your tax exemption status!
As you can see, there are a multitude of reasons to start your own nonprofit if you get the opportunity. It’s important that you know whether or not you’re eligible to start a nonprofit – if you’re trying to make money, it’s probably not the best avenue to take. Those who start nonprofits are typically extremely motivated by their cause.
If you do start a nonprofit, there’s a chance you’ll need some financing in the initial stages of your operations. Business loans, business credit cards, and business lines of credit are all great ways to get started. Check out some of the other pages on our site if you’d like to see the best ways to fund a nonprofit.
William Anderson has been working with small business owners for the past 10 years. He got his start at an investment bank, but felt that he was too detached from where real people were making decisions that affected local economies. As a result, he took his experience and his MBA degree to work helping local small businesses.