Many nonprofit organizations seek some form of tax-exempt status from the IRS, and this requires organizing your nonprofit for purposes the IRS recognizes as tax-exempt. Section 501(c) of the Internal Revenue code identifies 28 different types of tax-exempt nonprofits, but most nonprofits apply for 501(c)(3) tax-exempt status for charitable organizations, including public charities and private foundations.
If your nonprofit decides to seek 501(c)(3) status, your articles of incorporation must include the tax-exempt language and provisions required by the IRS. These include a clause dedicating your nonprofit’s activities to one of several possible IRS-approved purposes, a clause guaranteeing that your nonprofit’s activities will serve public (not private) ends, and a clause guaranteeing that your nonprofit’s income and assets won’t get distributed to its directors, officers, or members upon dissolution.
The answer to this question changes from state to state. Often states only grant tax exemptions to organizations granted federal tax-exempt status first by the IRS, but this isn’t true of every state. Additionally, some states will exempt nonprofits from different state taxes (or none at all). It’s best to visit your state’s department of revenue (or the equivalent state entity) to find out about your state’s individual rules and requirements.
To keep your nonprofit in good standing in your state and at the federal level, you’ll have to do three things:
The name can be somewhat of a misnomer because many states have biennial reports and one even has a decennial report that only needs to be filed every 10 years (we’re looking at you Pennsylvania!). Annual reports are essentially a state tax. In most states, you simply need to confirm or update any information the state has on your nonprofit and pay a “filing fee” (this is really just away for the state to collect some extra income). In most states, you can just file online in a few minutes.
If your nonprofit is a charity, and if your state requires charitable nonprofits to register, you’ll usually need to renew your charitable solicitation license each year (this isn’t true in every state). Depending on the state in question, your nonprofit may register with the state’s secretary of state, its attorney general, or a department devoted exclusively to governing business entities and nonprofits.
Apart form submitting tax returns at the state level, if your nonprofit obtains federal tax-exempt status, you’ll likely need to submit Form 990—basically, an informational tax return—to the IRS each year, though some types of 501(c)(3) organizations are exempt from this requirement.