Cost-effective ways of starting a nonprofit

Starting a nonprofit organization is a wonderful way to help others and make a difference. However, as easy as it is to find a name and mission statement, the difficult part is the financial costs of setting up the organization.

Unlike those nonprofits started by the very rich, most are set up by a few caring individuals or by a single person. Knowing the costs of starting up a nonprofit and how to reduce these by spending less on lawyers and accountants can help make the process smoother and less costly.  Nagabhushanam “Bobby” Peddi, TRUiC CEO, who is a serial entrepreneur and a very substantial supporter of philanthropy puts it this way: “We need nonprofit structures, else giving back would have been difficult for most visionaries who do this”.

There are many types of nonprofit organizations and these include regional sports leagues and homeowners’ associations. However, the most common type of nonprofit formation in the U.S. is charitable nonprofits, also known as 501(c)(3).

Startup costs for nonprofits

The initial startup costs for a nonprofit can be affordable if the group is prepared and organized. You might think that wealthy celebrities who use nonprofits are more concerned with their Instagram Verification than structures? But no: planning is essential to reduce stress, ensuring that all the right forms are handed in on time and no costly mistakes are made on them.

These are the initial costs:

Incorporation fees

Even though many small nonprofits and temporary ones don’t need to incorporate, it is essential if they want to seek tax-exempt status in their state.

For the incorporation, the nonprofit needs a legal business name and to file the necessary documents to the state’s corporate filing office.

These documents needed by the state are known as Articles of Incorporation, but in some states, they are known as Certificates of Organization. Fees for submitting these vary from one state to the other and in Kentucky are below $10, whereas in Pennsylvania are $125. There are also additional fees that may include a business license fee and fee for charitable solicitation. These also vary in each state.

Drafting and adoption of bylaws and conflicts of interest

The two most important documents for running a nonprofit are the Bylaws and Conflict of Interest Policy. The one sets the rules for running the organization and the other ensures that all decisions are made with the organization in mind and not for personal gain.

The selected board of directors hold an official meeting where minutes are recorded. They take attendance, appoint officers, and adopt the bylaws and conflict of interest policy.

501(c)(3) status costs

Once the articles of incorporation are accepted by the state, the nonprofit must apply for 501(c)(3) status with the IRS. This ensures that the nonprofit is granted exemption from federal income taxes. Depending on the annual revenue expected, there are two different types of forms to be completed. Form 1023 is for nonprofits that will exceed $50,000 annual income and the filing fee for that is $600. If the annual revenue will be below that threshold, Form 1023-EZ needs to be filed and its filing fee is $275.

Even though nonprofits have up to 27 months to file for 501(c)(3), they should have it before starting public fundraising, otherwise, they may not have any tax exemptions for those donations. They can also not receive any money from grant foundations for startup funds. 

Employer Identification Number (EIN)

This doesn’t cost anything to get, but all nonprofits can benefit from having one, even if they don’t have employees. An EIN can help nonprofits in some states save on startup costs for materials and technology.

Other financial costs

Other than the necessary paperwork, other costs that need to be considered include office space, utility services, equipment, legal fees, accounting fees, and employee salaries. Sales tax exemption helps to decrease the costs of purchasing necessary materials and equipment for the nonprofit.

Depending on the nature of the nonprofit organization, there is also the consideration for insurance coverage and health insurance for any employees.

The most cost-effective way to set up a nonprofit is with the help of TRUiC. All the steps for each of the 50 states are laid out. Each step guides applicants through the process, including advice on naming the organization, choices of registered agents, all the relevant state application forms, filing of Form-1023 online, selecting directors and officers, writing the bylaws, and corporate minutes templates.

The process is both cost- and time-effective.