Before starting any company, an entrepreneur will go through a grueling process of forming a legal entity. It will take some months for it to realize because you’ll need to establish some formalities and file documents. So here’s How To Become a 501C-3 Company.
The process of getting a 501C-3 certification may take up most of your time. But you have to understand what it is and the steps to acquire it.
In this article, we’ll give you an overview of how to become a 501C-3 company and form your nonprofit to prepare for it.
What is a 501C-3 Certification?
The Internal Revenue Service (IRS) grants and approves a 501C-3 certification to organizations that have a charitable purpose. An organization can also receive tax-deductible charitable contributions, according to the IRS.
Most organizations under the 501(c)(3) coding are the following:
- Public safety
- National and International amateur sports
- Prevention of cruelty to children or animals
The IRS also recognizes the following as a 501(c)(3) organization:
- Private foundation
- Private operating foundation
- Public charity
If your nonprofit falls under any of these categories, you’re likely to get a 501C-3 certification.
In submitting your 501C-3 application, you need to form your nonprofit and accomplish Form 1023. From there, you’ll have to wait for the IRS’s verdict.
Once approved, you’ll receive a determination letter from the IRS. Sometimes, it will state the types of annual returns you need to file. If you’re required to file Form 990, make sure to file it because you may get a revocation for not filing one in 3 years.
For further information on what else you need to do as a certified 501(c)(3) organization, you can read more about it on their attached 4221-PC document.
Those with a 501(c)(3) certification may get an exemption in filing income and property taxes.
How to form a nonprofit?
You’ll need to follow the process of forming a nonprofit. It’s a crucial part of how to become a 501C-3 company. Without proper planning and incomplete information and requirements, your application may be delayed.
Naming Your Organization
Your organization’s name is of utmost importance. To form your nonprofit, you also have to identify the legal entity as you operate your organization. You should identify as a corporation, a trust, or an unincorporated association.
You’ll have to read more on naming requirements in your state before applying as a 501C-3 organization.
Determining Exempt Purpose
Before filing your application, you need to identify why you need to be exempted. The IRS considers charitable as one of the main reasons for becoming a 501C-3 company.
Forming the Board and Drafting Bylaws
Plus, with them on board, you can draft the bylaws.
Those are the rules that can guide and govern your nonprofit’s operations, roles you, your employees, and the board will undertake. Other rules to consider in your bylaws are meetings, conflict of interest, and committees.
You must remember to inform the IRS annually of any changes in your bylaws, which you’ll file on Form 990.
Filing Articles of Incorporation
You need to supply information such as:
- The nonprofit’s name
- Name of incorporator
- Address of operation
- Registered agent
- Board of directors
Submitting your 501(c)(3) Application
To become a fully-fledged 501C-3 entity, you need to file Form 1023. It’s the most important document you need on how to become a 501C-3 company.
You have a 27-month grace period from the date when you filed your articles of incorporation to submit the 501C-3 application. By then, donations received are considered tax-deductible. If unable to do so, your tax-exempt status will begin on the postmark date of the Form 1023 you submitted.
To get a better understanding of the information needed to accomplish the form, you can check out this interactive checklist. It will serve as your guide.
Prepare to pay an application fee. For those filing Form 1023, you need to pay a user fee of $650. Meanwhile, those filing Form 1023-EZ will have to pay $275. You must pay the correct user fee since paying the wrong one would cause delays in your application.
You also need to attach the organizing documents as part of your application too. Since it’s a requirement to be organized and operated.
Securing Licenses and Permits
After having an approved 501C-3 application, your next course of action is to apply for state and local licenses. All US businesses are required to have licenses and permits to operate.
Licenses and permits vary from state to state, so you’ll need to gather information based on the type of your organization.
Certification of a 501(c)(3)
Once you’ve got approval to become a 501C-3 company, you’ll receive the determination letter from the IRS.
In the letter, the IRS tells you which types of tax documents you’ll need to file. It will indicate that contributions made to your organization are tax-deductible. In turn, you may receive tax-deductible bequests and gifts as well.
If you have a website, you may publish it to verify that your company is 501C-3, as some do.
If in some cases you lost your 501C-3 determination letter, you can retrieve it by calling the IRS. As much as possible, keep it in a safe place so you won’t misplace it.
It’s important to identify the type of exempt purpose, so the IRS can exempt you. When they do, make sure to keep your determination letter in a safe place. That way, you won’t have to call the IRS to request another copy.
The process on how to Become a 501C-3 Company may be time-consuming or tedious, but it will ensure your certification, provided you follow the steps.