Are you considering starting a nonprofit organization in the U.S.? Are you already incorporated as a nonprofit and now considering whether to apply for tax-exempt status? Or perhaps you're an organization that has applied for tax-exempt status but has not yet received your determination letter from the IRS.
The resources here are intended to assist anyone in these categories. While access to most TechSoup product donations in the U.S. requires evidence of a currently valid IRS determination letter, there are still a wealth of educational resources available to new organizations or organizations in the process of being formed.
There are multiple benefits to incorporating a nonprofit organization, particularly if you already have potential donors lined up or assets that you would like to dedicate to a nonprofit cause. However, legal incorporation also carries significant obligations, including regular filing requirements and associated fees, as well as public filings and supervision by various government agencies. Below are a few good resources to help you determine whether incorporation as a nonprofit organization is the best next step for your good idea.
Most nonprofit organizations with charitable purposes will choose to apply for tax-exempt status under section 501(c)(3). These are the two primary benefits:
The following resources walk you through the pros and cons of operating as a 501(c)(3), as well as the steps for completing an exemption application.
First, it's important to know that, once you receive your tax-exemption letter, your exempt status will be retroactive to the date of incorporation. What this means is that, once your letter is received, donors may still claim tax deductions for their contributions if the contribution was made after the date of incorporation. As the IRS explains:
When the IRS approves a timely filed exemption application, exempt status is recognized back to the date the organization was created. Thus, while an application is pending, the organization can treat itself as exempt from federal income tax under section 501(c)(3). For example, it must file Form 990 (instead of an income tax return) while its application is pending. However, contributors to the organization do not have advance assurance of deductibility because the organization's exemption is pending. If the organization ultimately qualifies for exemption for the period in which the contribution is made, the contribution will be tax-deductible by the donor. Alternatively, if the organization ultimately does not qualify for exemption, then the contribution will not be tax-deductible.
Please note that, generally speaking, you must file your exemption application within 27 months of your date of incorporation.
Second, funders can still fund your organization before you have a 501(c)(3) letter. More commonly, initial funding will come from individual supporters who have confidence that the organization will receive a positive determination letter. However, there are several other options available to you. Here are a few good resources to consider while you wait to receive your 501(c)(3) letter.
If you have a funder who is ready to fund you but requires a 501(c)(3) letter, you have two possible paths forward to receive those funds now:
If you do have a fiscal sponsor, we may be able to support you through a pilot project. Contact us at PilotPrograms@TechSoup.org so that we can work with you to identify possible opportunities.
Finally, TechSoup offers educational content, forums, and toolkits for all organizations, most at no cost, on our website:
Congratulations! With a current IRS determination letter, you will have more access to resources and funding opportunities since many funders require a determination letter as a prerequisite to receiving grants. Below are a few good resources to help you hit the ground running.
Maintaining 501(c)(3) Tax-Exempt Status Course (IRS). This free IRS course discusses what charitable volunteers and employees must do to maintain exemption and which actions can result in revocation of exempt status.
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