Starting a nonprofit is more than filing paperwork — it’s creating a legal entity that can receive tax-deductible donations, apply for grants, and serve your mission for years to come. The process takes time and has specific legal requirements, but it’s straightforward when you know the steps.

Here’s exactly how to do it.

Step 1: Define Your Mission

Before you file anything, get clear on why you exist. Your mission statement should answer:

• What problem do you solve?
• Who do you serve?
• How do you solve it?

Example: “We provide after-school tutoring and mentorship for at-risk youth in Pulaski County, Arkansas.”

Your mission drives everything — your programs, your fundraising, your board recruitment, and your IRS application. Vague missions create vague organizations.

Tip: Write a one-sentence mission statement and a one-paragraph mission description. You’ll need both.

Step 2: Research the Landscape

Before creating something that already exists, check:

1. Is anyone already doing this? Search GuideStar (candid.org) and IRS Exempt Organizations for organizations with similar missions in your area.

2. Is there unmet need? Talk to potential beneficiaries, community leaders, and existing organizations. Find the gap.

3. Could you fiscally sponsor instead? If your budget will be under $50,000/year, fiscal sponsorship (operating under an existing nonprofit’s tax exemption) is faster, cheaper, and lets you test your idea before incorporating.

If an organization already serves your target population well, consider partnering with them instead of starting a new nonprofit. Collaboration beats duplication.

Step 3: Choose Your Board of Directors

The IRS requires a minimum of 3 board members for 501(c)(3) organizations. Most states require 3 as well. Choose people who:

• Bring diverse skills (legal, financial, fundraising, program expertise)
• Are passionate about your mission
• Are willing to govern, not just advise
• Are not all related to you (the IRS looks for independent board members)

Common mistake: Choosing friends and family who agree with everything. You need board members who will ask hard questions, not just rubber-stamp decisions.

Step 4: Incorporate in Your State

File Articles of Incorporation with your state’s Secretary of State. This creates your nonprofit as a legal entity.

What to include:

• Organization name (check availability first)
• Mission statement
• Board of directors (minimum 3)
• Dissolution clause (required by the IRS — assets must go to another 501(c)(3) if you dissolve)
• Registered agent (someone who receives legal notices)

Cost: $20-100 depending on your state.

Important: Include specific language required by the IRS for 501(c)(3) status. Most state filing offices have a template. Use it — don’t try to write your own Articles from scratch.

Step 5: Create Bylaws

Bylaws are your organization’s governing rules. They cover:

• How board members are elected and removed
• Board meeting requirements (how often, quorum, voting)
• Officer roles and duties (President, Secretary, Treasurer)
• Conflict of interest policy
• How amendments are made
• Dissolution procedures

You don’t file bylaws with the state, but you must have them. The IRS will ask for them in your 501(c)(3) application.

Tip: Use a nonprofit bylaws template from your state’s nonprofit association or an attorney. Don’t write them from scratch.

Step 6: Get an EIN

An Employer Identification Number (EIN) is your nonprofit’s Social Security number. You need it to open a bank account, file taxes, and apply for 501(c)(3) status.

How to get one: Apply online at irs.gov — it’s free and instant.

Step 7: Open a Bank Account

Open a nonprofit bank account using:

• Your EIN
• Articles of Incorporation (certified copy)
• Bylaws
• Board resolution authorizing the account

Important: Never mix personal and organizational finances. Even small commingling creates tax and legal problems. Get a separate bank account before you accept a single donation.

Step 8: File Form 1023 for 501(c)(3) Status

This is the big one. Form 1023 is your application for federal tax-exempt status. Without it, your organization is a nonprofit corporation but donors can’t deduct contributions.

Two options:

• Form 1023-EZ — For organizations with gross receipts under $50,000 and total assets under $250,000. Shorter form, faster processing (2-4 weeks), $275 filing fee. Most small nonprofits qualify.
• Form 1023 (full) — For larger organizations or those with complex structures. Longer form, slower processing (3-12 months), $600 filing fee.

What you’ll need:

• Articles of Incorporation
• Bylaws
• Conflict of interest policy
• Narrative description of your activities
• Financial projections (budget for next 3 years)
• Board member information
• Compensation information (if anyone is paid)

Processing time: 2-4 weeks for 1023-EZ, 3-12 months for full 1023.

Step 9: Register for State Tax Exemption and Charitable Solicitation

After receiving your 501(c)(3) determination letter, apply for:

• State tax exemption (income tax, sales tax, property tax — varies by state)
• Charitable solicitation registration (required in most states before you ask for donations)

Each state has different requirements and fees. Check your state’s Attorney General or Secretary of State website.

Step 10: Set Up Your Systems

Before you start operating, put these in place:

1. Accounting system — Use nonprofit-specific software (Aplos, ChurchTrac) or QuickBooks with classes

2. Donor management — A simple CRM (Little Green Light, Bloomerang) or even a spreadsheet for very small orgs

3. Conflict of interest policy — Required by the IRS; adopt it at your first board meeting

4. Document retention policy — How long you keep records and what you destroy

5. Board meeting minutes — Document every board decision. It’s legally required.

Common Mistakes to Avoid

1. Not having a dissolution clause. The IRS requires it. Without it, your 501(c)(3) application will be rejected.

2. Filing Form 1023 too late. You must file within 27 months of incorporation. After that, you lose retroactive tax-exempt status.

3. Not filing Form 990 annually. Even small nonprofits must file (990-N for orgs under $50,000). Three years of non-filing = automatic revocation of tax-exempt status.

4. Board members who are all related. The IRS wants independent governance. A board of three family members is a red flag.

5. Paying yourself as the founder. Compensation must be reasonable and approved by an independent board. The IRS scrutinizes founder compensation closely.

Timeline and Cost Summary

Do You Need an Attorney?

Not necessarily. Many small nonprofits file Form 1023-EZ without an attorney. The EZ form is designed for self-filers.

Consider an attorney if:

• Your organization has a complex structure (unrelated business income, international activities, fiscal sponsorship)
• You’re filing the full Form 1023
• You have questions about compensation, conflicts of interest, or state-specific requirements
• Your budget is over $50,000/year

A nonprofit attorney consultation costs $500-2,000. It’s worth it if your situation is complex. It’s unnecessary if you’re a straightforward small nonprofit.

Our Recommendation

For most small nonprofits:

1. Start with fiscal sponsorship if you need to accept donations immediately

2. Incorporate and file Form 1023-EZ ($275) for long-term independence

3. Use templates for bylaws and conflict of interest policies (don’t pay an attorney for boilerplate)

4. Set up nonprofit accounting before your first donation

5. File Form 990-N every year to maintain your status

The process takes 2-6 months and costs $300-3,000. It’s not fast or free, but it’s manageable — and the tax-deductible donations and grant eligibility are worth it.

SoftDecide helps churches, nonprofits, and small organizations find the right software. Our comparisons are independently researched. We may earn a commission if you purchase through links on this page — at no extra cost to you.