How to Start a 501(c)(3): Step-by-Step Guide

A 501(c)(3) designation is what makes your nonprofit tax-exempt and allows donors to deduct their contributions. It's the most common tax-exempt status for charitable organizations — and the one most funders and donors expect.

This guide walks you through every step, from incorporation to IRS approval to your first day of operations.

What Is a 501(c)(3)?

Section 501(c)(3) of the Internal Revenue Code grants tax-exempt status to organizations operated exclusively for charitable, religious, educational, scientific, literary, or public safety purposes. The two key benefits:

1. Your organization doesn't pay federal income tax on revenue related to your exempt purpose
2. Donations to your organization are tax-deductible for the donor — this is the single biggest advantage over other tax-exempt structures

There are two types of 501(c)(3) organizations:

• Public charities — Receive a substantial portion of support from the general public or government. Most nonprofits are public charities.
• Private foundations — Funded primarily by a single source (individual, family, or corporation). Subject to stricter rules and excise taxes.

If you're starting a typical mission-driven nonprofit that will fundraise from the public, you're forming a public charity.

Prerequisites: What You Need Before Filing

Before you can apply for 501(c)(3) status with the IRS, you need:

1. A nonprofit corporation — You must incorporate in your state first. The IRS doesn't create your organization; it recognizes your existing corporation as tax-exempt.
2. An EIN — Your Employer Identification Number is your organization's tax ID.
3. Articles of incorporation — With specific IRS-required language (purpose clause and dissolution clause).
4. Bylaws — Your internal governing document.
5. A board of directors — Most states require at least 3 members.

For a complete walkthrough of the incorporation process, see How to Start a Nonprofit.

Step 1: Incorporate in Your State

File articles of incorporation with your Secretary of State. Your articles must include two clauses the IRS requires for 501(c)(3) status:

Purpose clause (IRS-required language):

"This corporation is organized exclusively for charitable, educational, and scientific purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code."

Dissolution clause (IRS-required language):

"Upon dissolution, assets shall be distributed for one or more exempt purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, or to a federal, state, or local government for a public purpose."

If your articles don't include these clauses, the IRS will reject your application. Some states include this language in their standard nonprofit articles template; others don't.

Filing fees and processing times vary by state. Use our Nonprofit Startup Cost Calculator to see your state's specific fee, or check the state-by-state guide.

Step 2: Get Your EIN

Apply online at IRS.gov. It's free and instant during business hours. You'll need your articles of incorporation and the name/SSN of a responsible party (typically the board president or incorporator).

See How to Get an EIN for Your Nonprofit for detailed instructions.

Step 3: Draft Your Bylaws

Your bylaws govern how your organization operates. The IRS requires a copy with your Form 1023 application. Key sections include:

• Board of directors — Size, terms, election process, removal procedures
• Officers — Roles (President, Secretary, Treasurer), duties, terms
• Meetings — Annual meeting requirement, quorum rules, notice requirements
• Conflict of interest policy — Required by the IRS; addresses situations where board members have personal interests in organizational decisions
• Compensation policy — How compensation is determined and approved
• Dissolution — What happens to assets if the organization closes

For a template and detailed guidance, see How to Write Nonprofit Bylaws.

Step 4: Determine Which IRS Form to File

Criteria	Form 1023-EZ	Form 1023 (Full)
Projected gross receipts	Under $50,000/year for 3 years	$50,000+ or uncertain
Total assets	Under $250,000	$250,000+
Filing fee	$275	$600
Format	Online only (Pay.gov)	Online via Pay.gov
Length	~3 pages of questions	26+ pages with attachments
Approval time	2-4 weeks	3-6 months
Financial projections	Not required	3 years required
Narrative description	Brief	Detailed (Part IV)

Most new small nonprofits qualify for Form 1023-EZ. Check the IRS eligibility worksheet to confirm. If you qualify, there's no advantage to filing the full Form 1023.

Step 5: Prepare Your Application

For Form 1023-EZ

The 1023-EZ is filed online through Pay.gov. You'll need:

• EIN
• Date of incorporation and state
• Brief description of your activities
• Confirmation that you meet the eligibility criteria
• $275 filing fee (credit card or bank transfer)

The application takes most people 30-60 minutes to complete.

For Full Form 1023

The full Form 1023 requires significantly more preparation:

Part IV — Narrative Description of Activities: This is the most important section. Describe every activity your organization will conduct, who benefits, how activities further your exempt purpose, and what percentage of time and resources each activity represents. Be specific and thorough — vague descriptions are the most common reason for IRS follow-up questions.

Financial Data:

• Revenue and expense projections for your first 3 years (or actual figures if you've been operating)
• Expected sources of revenue (donations, grants, program fees, events)
• Compensation details for officers, directors, and key employees

Attachments:

• Articles of incorporation
• Bylaws
• Conflict of interest policy
• Board member names and addresses

Use our Form 1023 Preparation Checklist to make sure you have everything before you start.

Step 6: File and Wait

Both forms are filed through Pay.gov. After filing:

• Form 1023-EZ: Expect a determination letter within 2-4 weeks
• Form 1023: Expect 3-6 months. The IRS may send follow-up questions — respond promptly to avoid further delays

When approved, you'll receive a determination letter — this is your proof of tax-exempt status. Keep it forever. Donors, funders, and banks will ask for it.

Important: Your 501(c)(3) status is retroactive to your date of incorporation (or the date you started operations, if earlier) as long as you file within 27 months of incorporation.

Step 7: Post-Approval Setup

Once you have your determination letter:

Register for State Tax Exemptions

Federal 501(c)(3) status doesn't automatically exempt you from state taxes. File separately for state income tax exemption, sales tax exemption, and property tax exemption in your state.

Register for Charitable Solicitation

41 states require registration before you solicit donations from the public. Fees range from $0 to $300+. See your state-specific checklist for requirements.

Set Up Fund Accounting

New nonprofits need fund accounting — not QuickBooks. Fund accounting tracks resources by restriction level (unrestricted, temporarily restricted, permanently restricted) and generates the reports your board, donors, and the IRS expect.

Alignmint's Starter plan is free for nonprofits with up to $100,000 in annual donations and includes fund accounting, donor CRM, volunteer management, and AI features. See pricing →

Prepare for Your First Form 990

Your first Form 990 is due on the 15th day of the 5th month after your fiscal year ends. For calendar-year organizations, that's May 15. Miss three consecutive years and you'll automatically lose your tax-exempt status — no warning, no grace period. See Form 990 for New Nonprofits.

Common Mistakes to Avoid

1. Filing articles without IRS-required language — If your purpose clause or dissolution clause doesn't match IRS requirements, your application will be rejected. Fix this before filing.
2. Choosing Form 1023 when 1023-EZ works — If you qualify for 1023-EZ, use it. It's cheaper, faster, and easier. There's no benefit to filing the full form if you don't need to.
3. Vague activity descriptions — "We help people in need" isn't enough. Describe specific programs, activities, populations served, and how you'll measure impact.
4. Ignoring state requirements — Federal tax-exempt status doesn't cover state obligations. Register for state exemptions and charitable solicitation separately.
5. Not setting up accounting from day one — Every dollar your nonprofit receives needs to be tracked properly. Don't wait until your first 990 is due to start keeping books.

Not Sure 501(c)(3) Is Right for You?

• Short-term project? Fiscal sponsorship through InFocus Ministries gets you started in weeks
• Need to lobby? A 501(c)(4) allows unlimited lobbying activity
• Trade association? A 501(c)(6) may be the better fit
• Not sure? Take our Eligibility Quiz

Ready to get started? Schedule Your Free Setup | Use the Free Startup Checklist

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Related:

• How to Start a Nonprofit: The Complete 2026 Guide — The full process from mission to operations
• How Much Does It Cost to Start a Nonprofit? — State-specific cost breakdown
• Form 1023 Preparation Checklist — Everything you need before filing
• Nonprofit Articles of Incorporation — What to include in your filing