When Do I Need To Register My Non-Profit with the County or State?

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What Is a Nonprofit?

A nonprofit organization or business has elements that a for-profit business doesn’t have. Nonprofits are established to benefit society in some way and their main goal is not to gain personal monetary profit from their contribution to society. There are three elements that are indicative of a nonprofit such as:

  • Having a mission that focuses on a benefit to society without their goal being for a profit
  • The organization or business is owned by the public and shares in the interests of the organization or business
  • Whatever income is raised or gained for the organization is put back into the organization and not into the pockets of one or more people

Under Internal Revenue Service Rules, no individual can benefit from a nonprofit’s activities except through their salary. In 2017, there were more than 2.2 million registered charities in the United States. The top five states with the highest number of nonprofits over 100,000 are:

  • California
  • Texas
  • New York
  • Florida
  • Pennsylvania

Nonprofit organizations are soup kitchens, hospitals, universities, and churches. Nonprofits are divided into three subsections of the Internal Revenue Code 501(c). There are public and private organizations.

Public nonprofits such as hospitals, higher education, human services, the arts, and other such entities, register with the IRS as 501(c)(3) Public Charities:

  • Their gross receipts are $25,000 or more (such as hospitals, museums, universities, and others)
  • Their gross receipts are under $25,000 (Neighborhood organizations, community theaters, and others)
  • Registration for public congregations is voluntary

Nonprofits that usually are not registered with the IRS include very small organizations with gross receipts under $5,000 and small congregations. Each nonprofit’s purpose and revenue will be different and depends on many factors. Not all nonprofits will fall under the same category as other like entities.

Private Foundations that can also be hospitals, higher education organizations, and other like entities must always register without exception, with the IRS. Private foundations rely mostly on income from investments generated by their endowments.

A small percentage of these private foundations are actually operating organizations and are usually grantmaking, and most are family foundations. These foundations are always registered with the IRS as 501(c)(3) Private Foundations.

There are other small tax-exempt charities and organizations such as credit unions, social clubs, fraternal organizations, civic clubs, and others that are registered under various the United States Internal Revenue Code 501(c).

What Type of Nonprofit Do I Have?

The IRS officially recognizes 27 types of nonprofits that are exempt from federal taxes and in some instances state taxes. Not all nonprofits recognized will be fully exempt and each nonprofit is different in scope, contribution, and lobbying. The IRS provides a guideline for nonprofit exemption, and subsection 501(c) of the IRS tax code lists rules for each nonprofit.

Nonprofit is a status based on taxes that is given to an organization based on its nature. If you seek funding only from the members of your organization, you may not have to file for a general business license. If you collect funds from fundraising campaigns, seek grants from the government or state, you might need a charitable solicitation license.

Though churches are not required to obtain a license, they must obtain a license if they provide services beyond their regular church service which must be regulated or inspected regularly such as a daycare or soup kitchen.

It is important to note that registering to solicit contributions for your nonprofit is not the same thing as filing a business license. And not all states require you to register a charitable organization. Most all states require registration, however, the following states do not require an organizer to register their charitable nonprofit: Delaware, Idaho, Iowa, Indiana, Nebraska, South Dakota, Vermont, and Wyoming.

Texas has registration limits relating to public safety and veterans organizations and Arizona requires registration if the solicitation of funds if they are intended to benefit or support veterans organizations. Some other states do have exceptions and contacting an attorney who can study your nonprofit proposal and application, and who knows the laws of your state, can assist in the future planning and preparation for launching your nonprofit.

Though the IRS recognizes 27 types of nonprofits which also have subsections, the following are the seven most commonly known nonprofits:

  • 501(c)(1)

Corporations organized under an Act of Congress such as federal credit unions

  • 501(c)(2)

Holding corporations for exempt organizations, which means they can legally hold the title to the property of an exempt organization.

  • 501(c)(3)

The most common type of nonprofit, including religious, scientific, educational, and charitable organizations. All 501(c)(3) organizations are considered private foundations, (i.e., nonprofits that don’t qualify as public charities).

  • 501(c)(4)

These can be local associations, civic clubs, welfare organizations or any entity that provides educational or recreational activities.

  • 501(c)(5)

These nonprofits are educational or instructive in the improvement of products or labor by nature and can fall under the classification of labor or agricultural organizations.

  • 501(c)(6)

These nonprofits are usually such groups as chambers of commerce or business leagues which seek to improve conditions of the business environment.

  • 501(c)(7)

These nonprofits are usually recreation or social clubs which promote social activity.

Where Do I Start?

The first step anyone should take if they want to start a nonprofit is to consult an attorney. An attorney can inspect the purpose, plan, and business language of the proposal for the organization. An attorney can advise you on the laws of your state, what is required by the IRS, and assist you in navigating the many aspects of your nonprofit – which in some cases can be complicated.

After you consult an attorney, the following steps are usually taken to create a nonprofit – though the list is by no means exhaustive:

  • Register with the state. Your attorney can advise you if you are one of the exempt states.
  • Apply for nonprofit status with the IRS. To be considered a profitable nonprofit to the IRS, an organization must show it has a broad base of public support within its first five years.
  • Register as a Charitable Solicitor. If you are going to raise money and your nonprofit is seeking support from the public for funding.
  • Create a board of members. In order to qualify as a nonprofit, staff must be created to maintain it – such as treasurer, secretary, fundraiser, and other positions.
  • Create Bylaws. Bylaws describe your operating procedures.

There is a lot of work and detail involved in creating a nonprofit. It is not as hard as it all can seem though it is harder than one initially might think. If you have a purpose and a plan for a nonprofit, one of the wisest things you can do is to consult an attorney who can guide you through the process. While it is not an impossibly difficult task, it is one that can be very detailed and extensive.

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