By Evan Rauch, CPA Every day, individuals are inspired to make a difference in our world by giving back. Whether it is someone who works to help raise awareness and provides support to those who are dealing with drug addictions or a group starting a local youth football program allowing kids the opportunity to compete in team sports, there are many ways to support our communities.
The individuals or groups who work to make these ideas and goals a reality oftentimes are so focused on their missions that they do not realize some of the initial steps they need to take to set up a nonprofit. Here are some essential steps to starting a nonprofit organization.
Create a solid foundation
- Determine a mission statement and draft bylaws
Creating a formal mission statement and sustaining bylaws is important for the future success of the organization. This allows everyone to understand the goals of the organization and the purpose behind it.
- Secure a name and website domain
The name of the organization should be trademarked and a domain name and any social media accounts should be secured early to be sure there is legal control. Otherwise, the name of the organization could infringe on another organization.
- Draft a business plan and budget
A business plan should be created to document how the organization will achieve its mission and operate on a day-to-day basis.
An initial budget should also be created. Eventually, the budget should cover an annual period; however, starting out, it may be easier to create a short-term budget that includes start-up costs and helps determine the cash required in the beginning weeks or months.
- Appoint a board of directors
Management will need to appoint a board of directors who is responsible to guide the organization toward a sustainable future by adopting ethical and legal governance and financial management policies making sure the organization has adequate resources to achieve its mission. The size of this board can vary, but in general, 8 to 15 members is a sufficient goal.
Determine a legal structure:
- Nonprofit organizations can operate as either a corporation, trust or an association.
- Once a legal structure is determined, formal paperwork, articles of incorporation and filing fees are submitted to the IRS and the Indiana Attorney General’s Office to finalize the incorporation process.
File for tax exemptions
Nonprofit organizations may be eligible for exemptions from federal and state income taxes. To receive these exemptions, management and the board of directors must take the following steps:
- Determine the right filing status for the organization. Most nonprofits file using 501(c)(3), which is defined as “charitable, religious, and educational organizations”.
- Apply for the exemptions with the IRS (Form 1023 for 501(c)(3) organizations).
- Once the federal exemption has been awarded (EIN#), the organization can then apply for state tax exemptions (Indiana – Form NP-20A). https://www.in.gov/dor/3968.htm
Although it may appear to be time-consuming to complete these steps, they are vital to the sustained success of the organization. Once the appropriate paperwork is in order, management can continue working toward its vision.
For guidance on how to establish a nonprofit, contact Alerding CPA Group at 317-569-4181 or visit our website www.alerdingcpagroup.com to see all of the nonprofit resources we have available.
This post was written by:
Evan Rauch, CPA
As an audit supervisor, Evan Rauch is responsible for the performance of audit fieldwork, financial reporting and directly supervising the staff on the engagement. He has been with Alerding CPA Group for five years.