Most Frequently Asked Questions About Starting a Nonprofit Organization

Is Your Question About Nonprofit Startups Here?

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Do you have a nagging question about starting a nonprofit? Check this list of the most frequent questions.

  1. Can a Nonprofit Pay its Staff? How Much Can We Pay?
    A nonprofit can pay reasonable salaries to its employees. But those salaries must be reasonable. Here are the details.
  2. Do I Have to File for Tax-exempt status to be a Nonprofit?
    Many small charitable organizations never seek recognition as a nonprofit from their state or the federal government. Instead, they can become unincorporated nonprofit associations. Here's what that means.
  1. Are All Nonprofits Tax-Exempt?
    No, they are not. Tax-exempt means that a nonprofit (1) does not pay taxes to the federal government and (2) that its donors can take a charitable tax deduction. Only 501(c)(3) nonprofits fit these criteria. 
  2. When Do I Need to Apply for 501(c)(3) Tax-exempt Status?
    As soon as possible. The general rule is that you should file within 27 months after incorporation. Here are the specifics.
  3. What Is an Unincorporated Association?
    Many so-called nonprofits are simply groups of people who come together to perform some social good. They may have limited missions, small budgets and may even be temporary. Many remain informal organizations.
  4. What's the Difference Between a Church and a Religious Organization?
    There is some confusion about the differences in terms such as "church," "religious organizations," and "faith-based" nonprofits. Here are the facts.
  5. Do I Have to Pay to Register for Tax-Exempt Status?
    The IRS does charge a non-refundable processing fee for exemption applications. The amount depends on your revenue. 
  1. How Soon Can a New Nonprofit Start Fundraising?
    The "effective date" of your group’s tax-exempt status will be the day that status was initially created. You can fundraise before that date, but donors will not be able to take a tax deduction. It would be better to wait until after becoming a 501(c)(3) to fundraise.
  1. Are There Any Rules About How Much Fundraising My Nonprofit Has to Do?
    Actually, in a way, there is. That is because 501(c)(3) public charities are supposed to get a certain percentage of their income from the general public.
  2. What Is Unrelated Business Activity?
    What do you need to know about nonprofit "profits"? How do you distinguish between taxable business activities and those that are not taxable?
  3. Can a Nonprofit Charge Fees for Its Services?
    Many nonprofits count on fees from services they offer to clients as part of their annual incomes. Sometimes nonprofits sell products to provide additional revenue. There are several things to be aware of, however.
  4. Can a Nonprofit Compensate Its Board Members?
    Only about two percent of nonprofits compensate board members. Here's why it's so unusual.
  5. Can an Organization Be Part Profit and Part Nonprofit?
    There are alternatives to the traditional 501(c)(3). Some are hybrid organizations that make a profit while still serving a social good.
  6. Does Our Nonprofit Board Need Liability Insurance?
    Directors and Officers (D & O) liability insurance is necessary, but so are several other types of insurance.
  1. Why does the IRS Take So Long to Approve the Application for a Nonprofit?
    The IRS does have expedited reviews but only under very limited circumstances. A newer application that is available for small nonprofits takes less time. Here's what you can expect.
  2. How Do You Shut Down a Nonprofit?
    It's the last thing you want to do, but sometimes it's better to close your nonprofit. Here are the steps you should take.
  3. Can Paid Staff Members Serve on a Nonprofit's Board?
    It is not a good idea to have a paid staff member on the board and may even be limited by your state's nonprofit law.
  4. When and How Do I Set Up a Board for My New Nonprofit?
    A nonprofit organization must have a board of directors. The number and qualifications of the directors differ by state. You should recruit a board of directors before you incorporate.
     

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