How to Create a Non-Profit

Because of my experience helping my kids set up Chess 4 Charity as a 501c3 non-profit, many people have asked me about the "logistics" and "paperwork" involved in forming a non-profit entity. My answer to that is that you can do it the easy way, the hard way, or in between (each as described below):

(FYI for more background on their non-profit, see https://www.dhirubhai.net/pulse/20141025125412-1102979-how-you-or-your-kids-can-create-a-new-charity-event-in-3-easy-steps/?trackingId=XYviWl2uQnKkLPUMB35ghw%3D%3D and/or www.chess4charity.org).

The Easiest Way:?You don’t necessarily need any “paperwork” and don't need to create any special new "entity" at all. You can always fundraise on behalf of other non-profits without ever creating a new entity. If you use a fundraising website like?www.CrowdRise.com,?www.FirstGiving.com,?www.GoFundMe.com, etc., you can raise money for an existing charity, while still tracking the extent of your own fundraising efforts. You set up a personal fundraising page, but the money goes directly to the chosen charity.?Since the donation goes directly to the chosen charity, the donor can get a tax receipt directly from them. That’s an easy way to start in minutes. This works great if you want to do a handful of fundraising events, or you wish to raise money to support a preexisting charity or cause.

In Between:?You can form a non-profit corporate entity, but not file with the IRS for tax exempt status.?Make sure you form a non-profit corporation, not an LLC. There are services that will form a non-profit company for you, including all the filings with the secretary of state, and drafting all the legal documents you'll need, at least to get started. You may need to update these as you grow, or if you plan to raise a significant amount of money, but for a small, new non-profit, these types of services will suffice.?I recommend?www.mycorporation.com but other people seem to like LegalZoom. I have no affiliation with either.?To form a new entity, it will cost anywhere from about $100-300. This way, you will have a "real company" and you can fundraise in your own name instead of for another preexisting charity. But your profits will not be tax exempt.?That sounds like a problem, but it's really not.?Here's why. If you plan to donate virtually all the money you raise, then you will have zero profit. You will have a lot of "revenue" but then all the money/revenue that comes in will go right back out (as an expense), leaving zero "profit".?So from a tax perspective, the tax status is not important.?You will have to file tax returns, but unless you bring in a huge amount of revenue (over $50,000 or so I believe, but check with your accountant as these rules change) you can file a form 990N e-postcard online - this is an easy 5 minute online filing where you simply certify that you did not raise over a certain amount.?Pros: Pretty easy, get to have a "title" like "CEO" or "President" of a real company.?Cons: Has some cost involved, may have to file tax returns (postcard at first, real tax returns later eventually if your revenues/collections are high), not a full 501c(3), which may be required by some corporate donors (see below).

The Hard Way:?If you wish to get 501c3 tax status from the IRS, you have to complete the steps above to form a non-profit corporation first, then you also have to file IRS form 1023. This may be important once you start to seek larger corporate donors because some potential corporate donors will only donate if you have 501?(3) status and they have seen your certificate to prove it.?There are also services that will do the IRS filings for you?for a fee, but this gets even more expensive - it may cost several hundred dollars.?You can do it yourself, but it takes a bit of work, and there's still a filing fee directly with the IRS.?There's a long lag time after you apply before you hear back from the IRS with a decision - it may take a few months. For very small non-profits, it should be pretty easy to get approved but you still have to wait.?Assuming you plan to raise only small amounts (currently less than $50,000), and meet the other qualifications, you can file a streamlined IRS form 1023EZ.?You can find the relevant IRS forms and instructions here:?https://www.irs.gov/uac/Form-1023,-Application-for-Recognition-of-Exemption-Under-Section-501(c)(3)-of-the-Internal-Revenue-Code??To see if you qualify for the EZ version, look at this checklist/worksheet posted by the IRS here:?https://www.irs.gov/pub/irs-pdf/i1023ez.pdf??Pros:?Allows you to get donations from corporate donors, gives non-profit status to your income.?Cons:?High cost, labor intensive to set up, long lag time / wait during application process.

In any case, there are laws and rules about non-profits. You have to have a charitable purpose and you cannot use the money raised for personal reasons. You have to use the money for the benefit of the cause that you claim to be fundraising for. Nonprofits cannot do any lobbying nor support political causes. See more here: https://grantspace.org/resources/knowledge-base/tax-exempt-revocation/

Hope this helps!?Best of luck and have fun with it!

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About the Author:

Brian Heller is on the Board of Advisors to Chess 4 Charity Inc., a 501(c)(3), created and run by his kids. Please check out the website (and make a tax deductible donation now!) at?www.Chess4Charity.org. He is also a lawyer for a new and different kind of law firm, a 'virtual' law firm with no overhead that can pass on the savings to its clients.?https://www.outsidegc.com/brian-heller/?Outside GC is reinventing the business model for lawyers. Outside GC is 100% virtual, so they charge 1/3 what a larger more traditional firm might charge. All their lawyers have business experience or in-house legal experience (no career-law-firm-lawyers allowed), so they understand the business realities and can work efficiently. If you need a transactional deal lawyer with great real world experience, at a fair and reasonable price, check out Brian's bio at?https://www.outsidegc.com/brian-heller/