9 Tips To Become A Tax-Exempt Organization

If you’re looking to start a new non-profit organization, know that there are different types of tax-exempt status, and each has its own rules.

Depending on what type of organization you want to start, some additional paperwork or steps might be involved. Hence you should consider outsourcing 501(c)(3) application.

Below is a brief overview of the different tax-exempt organizations and what you need to become tax-exempt if you’re planning to start a non-profit organization.

1. Know The Main Types Of Non-profit Organizations

If you’re thinking of becoming a non-profit organization, you must first understand the main types of non-profit organizations. There are three prominent non-profit organizations: charitable, religious, and educational.

A charity is an organization that provides relief to the poor, distressed, or underprivileged. Some of the most well-known charities are reputable for providing ease.

Religious organizations serve the religious needs of their congregations by providing spiritual guidance or spreading knowledge about their religion’s principles and doctrines. It could be through preaching sermons or classes etc.

Lastly, educational non-profits provide training or instruction to their members, students (future employees), community groups, or even entire nations through courses on leadership development programs.

2. Choose A Unique Name And Secure Your Domain Name

To establish your non-profit organization, you must choose a unique name and secure your domain name. You know what it’s like to search for a product or service online, only to find that someone else already has registered the domain name you want. That is why you should choose a unique name for your organization and ensure that another organization doesn’t already take it.

When choosing an appropriate title or name, ensure your name is easy to spell and remember. This way, people can find your organization without difficulty when they search for tax-exempt organizations in the area where your non-profit operates.

3. Write Your Organization’s Mission Statement

A mission statement is an overview of your organization’s goals, which determines the purpose of your non-profit organization. It should be concise but also give potential supporters a sense of who you are and what you’re trying to accomplish. This is also an essential element for establishing your organization.

The best way to start writing a mission statement is by brainstorming ideas with other people from your organization. You can even ask for input from people outside the group if they have experience working with non-profits in the past and or have strong opinions about your field.

Once everyone agrees on an idea that seems promising enough to work with, write down all those ideas on paper or digitally and rank them accordingly. After then, arrange them into categories based on similarities.

4. Resolve To Incorporate Your Non-profit Organization

Incorporation is a process that allows your non-profit organization to become a legal entity that can exist on its own. It’s important because it gives your non-profit more identity and helps you in the future make decisions about what kind of structure you want for your organization.

Incorporating will also help you with tax filings since all non-profits need to file an IRS Form 1023 application when applying for 501(c)(3) status (more on this later).

5. Prepare And File Your Articles Of Incorporation

Articles of incorporation are the documents that legalize your organization as a corporation in the state where you’re filing them. There are many templates available online. You can use any guide to creating articles of incorporation for 501(c)(3)s and other non-profits.

Once you’ve created the draft, it’s essential to make sure that each part is correct:

  • The Name: This should be precisely what you want it to be on all legal documents (i.e., don’t abbreviate too much).
  • The Address: This should match where people can send checks or packages if they want to donate directly (not just where mail goes).
  • The Purpose: Make sure this matches what you’ve been doing so far and will continue doing forward.
  • Your Board Members’ Names: This is so that they have a way back into their organization if needed.
  • Signature Lines: All members must have their signatures included in the document. If someone else signs on behalf of a member but doesn’t specify it in the signature line, the member may not get credit for anything done by the said representative.

Amendments made later down the road and incorporating language at the bottom should also be correct.

6. Set Up Accounting Procedures For Tax-Exempt Status

You’ll need to set up accounting procedures for your tax-exempt status. You’ll need to keep detailed records of income and expenses, file annual tax returns with the IRS, and make sure that your accounting system complies with IRS regulations.

If you want to become a non-profit organization or a charity, contact an accountant or bookkeeper who can help you set up proper bookkeeping practices for your business to be eligible for tax-exempt status.

7. Adopt Bylaws To Retain Tax-Exempt Status

Adopting bylaws is an essential step in becoming a tax-exempt organization. Bylaws are rules that govern the operations of your organization. They can be used to establish the organization’s structure, procedures, and activities. Bylaws are often required for tax-exempt status because they provide detailed information about your non-profit’s operations.

You must carefully consider what types of restrictions are necessary for your particular type of organization, and whether or not you wish to include additional details regarding fiduciary responsibilities and conflicts of interest.

The most important aspect of writing bylaws is that each rule must be written in plain English. This way, there aren’t any questions left unanswered when the time comes for review by state regulators or IRS officials who’ll ultimately decide whether or not you will be granted official status as a non-profit corporation or association under their jurisdiction(s).

8. Apply For Federal And State Tax-Exempt Status

You’ll need to apply for federal and state tax-exempt status before soliciting or receiving money.

To do this, you’ll need to draft a formal application (also called Form 1023) stating your organization’s purpose and goals.

The IRS recommends using their online form builder tool to create Form 1023. However, it can be challenging to navigate if you’re unfamiliar with federal tax law and terminology. For that reason, you should get help from an attorney or accountant who can guide you through the process and answer any questions.

9. Establish A Board Of Directors To Run The Non-profit Organization

The board of directors is the governing body of a non-profit organization. Their duties include setting the mission, vision, and policies of the non-profit organization; overseeing its finances; hiring, firing, and setting compensation for executives; and providing guidance to executive leadership on strategy.

The board must also work with its members to set budgets, approve annual audits and provide other oversight responsibilities according to the bylaws of their particular type of non-profit corporation.


The process of becoming tax-exempt isn’t an easy one. However, it’s important to remember that many organizations out there need your help. The more people involved in their communities, the better our world will become.