People need nonprofit organizations when life gets challenging. Charities help improve someone’s quality of life when they’re economically or systemically disadvantaged, so starting a nonprofit is a noble venture. If you’re considering launching your own, read the most frequently asked questions about running a nonprofit to decide if it’s right for you.
Common Questions About Running a Nonprofit
1. How Do You Start a Nonprofit Organization?
You’re not alone if you’re wondering how to start a nonprofit organization. Many people have been in your shoes. There are currently 1.54 million nonprofits in the U.S. and each founder likely wondered the same thing.
First, you need to determine your organization’s purpose. Who will you help and how? Write the goal in a statement so it becomes a recruitment and advertising tool.
You’ll also need to outline your nonprofit’s goal and the steps you’ll take to make progress during your first year. The strategic plan will include details like how many board members you’ll have, which staff roles you’ll fill, what your budget will be and how you’ll account for your nonprofit’s financial activities.
Putting this much information together may feel overwhelming initially, but you’ll need the exact details when filing related legal paperwork. People in federal offices and donation positions must trust that your organization knows what it’s doing before you can get it off the ground.
2. Are Public Charities and Nonprofits the Same Thing?
When you picture a nonprofit, think of an umbrella. Nonprofits are any charitable organization that dedicates itself to a specific goal. Many other organizations, like charities and foundations, can fit within that umbrella.
They also have slightly different tax exemptions. Although nonprofits fall under Section 501(c) in the Internal Revenue Code (IRC), only donations to charities are tax-deductible for donors. An organization can also only be a charity if it gets most of its revenue from public donations through solicitations. Your nonprofit will remain a nonprofit as long as a significant portion of your revenue comes from private donors.
3. What Are the Most Popular Ways To Raise Money?
There are numerous ways to raise money for your nonprofit. You can start generating revenue with fundraisers that center around various activities. Some people might begin events that include people of all ages, like a balloon pop raffle or gift card wall. Others could schedule an auction.
Auctions can become a significant source of revenue for a nonprofit organization if the organization’s founders have the financial resources to invest in prizes. People will attend the auction to bet on items already there, so the items have to be popular. Your nonprofit could auction a popular new laptop,organize a Costa Rica trip for one winner or give gift certificates to local businesses.
Consider your target audience’s age range and interests to pick prizes that intensify the auction competition. You’ll raise more money by featuring desired prizes. If you can invest in those prizes upfront, your nonprofit could generate revenue by auctioning them for two or three times their purchase price.
4. Which Nonprofits Don’t Have to Apply for Tax Exemption Recognition?
It’s crucial to note that some nonprofits don’t have to apply for federal tax exemption recognition. The Internal Revenue Service (IRS) automatically exempts specific organizations based on their classification, such as:
- Churches, mosques, synagogues and temples
- Nonprofit organizations (except private foundations) making less than $5,000 annually
- Organizations branching from or associated with churches, mosques, synagogues and temples
Becoming tax-exempt can save a nonprofit crucial revenue, allowing the organization to help more people. However, some founders prefer to wait to file for exemption until they make more than the $5,000 annual benchmark. Once you reach that point, you must keep more detailed financial records and file yearly paperwork to maintain your tax-exempt status.
5. Can You Raise Money Without a Determination Letter?
After filing as a 501(c) organization, you’ll wait for a determination letter from the IRS. If the letter arrives with a stamp of federal approval, you can begin taking tax-exempt donations.
However, your nonprofit will need to raise revenue between the time of filing and when you get your determination letter. The good news is that it’s legal to start fundraising before the letter arrives. You must only ensure your donors know their donations won’t count as tax-deductible contributions until your letter comes. When it does, any donations since the date you founded your nonprofit are tax deductible.
6. What Are a Nonprofit’s Articles of Incorporation?
When you launch your nonprofit, you must submit specific documentation to your secretary of state. Articles of incorporation will be part of that paperwork. It’s a document outlining various required details that vary from state to state. Generally, you’ll need to include information such as:
- Your nonprofit’s name
- The broad purpose of your organization (from your mission statement)
- If your organization allows members or not
- The location of your headquarters or primary office
- Names and contact information for anyone on your board of directors
- Plans for distributing assets if your nonprofit dissolves
Sometimes people confuse articles of incorporation with a nonprofit’s bylaws. They’re similar, but bylaws primarily create operational rules for everyone within an organization. States may or may not require them as part of the articles of incorporation.
Set Up a Nonprofit With Confidence
Starting a charitable organization is a significant undertaking, so you’ll likely come across these frequently asked questions about running a nonprofit. Take your time and ask for clarification from legal advisors whenever necessary. You’ll collect the information you need to start your nonprofit and begin helping people with relative ease.