How do you start, run and file for a nonprofit? 501(c)(3)s, churches, associations and foundations explained

"Nonprofit" is a form under state law; "tax-exempt" is a status under federal tax law. Keep them apart. The most common federal exemption is 501(c)(3), where donors can deduct their gifts. Other 501(c) types are also exempt from income tax, but gifts to them generally aren't deductible.

Many community groups get this wrong. A hometown or alumni association built around member gatherings, dinners and events is closer to a 501(c)(7), and forcing a 501(c)(3) application invites IRS questions. A group whose main work is charity, education or relief should apply under 501(c)(3) so it can give donors deductible receipts.

Two more options:

• Fiscal sponsorship: run the project under an existing 501(c)(3), which receives the gifts and issues receipts. It suits new groups that aren't sure yet whether to incorporate.
• Group exemption: if you're a chapter of a national or state organization, ask the parent first. The chapter may not need its own application.

Form a nonprofit corporation in your state (in North Carolina, Articles of Incorporation on Form N-01 with the Secretary of State), adopt bylaws, get an EIN and open a bank account in the organization's name.

• Key clauses in the articles: purposes limited to those 501(c)(3) recognizes, and remaining assets going to another 501(c)(3) or the government on dissolution. Without them, the IRS will ask for amendments.
• Board: at least a board and officers, with minutes of meetings. Form 1023 asks about a conflict-of-interest policy for directors and officers.
• EIN: apply free with Form SS-4, online. Don't deposit gifts into anyone's personal account.
• Legal form: a 501(c)(3) can also be an unincorporated association or a trust, but most use a nonprofit corporation for clearer liability protection. An LLC can't use Form 1023-EZ.

Small, simple organizations can use Form 1023-EZ ($275); churches, schools, hospitals and larger organizations use the full Form 1023 ($600). Both are filed only online on Pay.gov.

Keep in mind:

• 27 months: file and be approved within 27 months from the end of the month you were formed, and exemption dates back to formation. Later than that, it generally starts when you file.
• Weekend language schools need a closer look: one applying as a "school," with a regular curriculum, teachers and enrolled students, can't use Form 1023-EZ under the eligibility worksheet.
• Who doesn't need to apply: qualifying churches are exempt automatically, and organizations with gross receipts normally of $5,000 or less (other than private foundations) needn't file Form 1023. Many still apply, because an IRS determination letter reassures donors, banks and partners.
• Public support test: a 501(c)(3) public charity must show most of its support comes from the public (generally at least one-third over 5 years). One that relies on a few large donors may be classified as a private foundation, with much stricter rules.

Nearly every exempt organization other than a church files a 990-series return each year, chosen by size. Unrelated business income means a Form 990-T, and employees mean payroll.

• Deadline: the 15th day of the 5th month after the fiscal year ends; May 15 for calendar-year organizations.
• Automatic revocation: three consecutive years without filing (including the 990-N) revokes exemption as of the third year's original due date. There's no appeal; you must reapply, and gifts received while revoked may not be deductible.
• Public disclosure: the 990 and the exemption application are public and must be provided on request; the donor list (Schedule B) generally isn't.
• Politics: a 501(c)(3) can't support or oppose any candidate, and lobbying must be an insubstantial part of its activities.

A nonprofit tracks restricted and unrestricted funds separately and records expenses as program, management and fundraising. That's what makes the 990, board reports and grant reports straightforward.

• Fund accounting: money a donor or funder designated for a purpose (a scholarship fund, disaster relief, a grant for one program) is recorded and reported on its own and can't be spent on general costs.
• Functional expenses: the 990 splits expenses into program services, management and general, and fundraising. Coding them that way during the year saves a lot of year-end work.
• Gift records: donor, amount, date and any restriction for every gift; for in-kind gifts, a description and value.
• Donor receipts: for any single gift of $250 or more, the donor needs a written acknowledgment stating whether anything was given in return. For a gift over $75 where the donor received something (a dinner or a gift), tell the donor how much is deductible.
• Volunteer treasurer handoffs: many groups change treasurers every year, with books on a personal laptop or spreadsheet. A shared bookkeeping system, monthly bank reconciliation and two-person approval keep the handoff clean.

On the donor side, 2026 brings changes: people who don't itemize can deduct up to $1,000 of cash gifts a year ($2,000 married filing jointly), and itemizers deduct only gifts above 0.5% of adjusted gross income. Worth mentioning in your year-end appeal.

• A 501(c)(3) doesn't pay federal unemployment tax (FUTA, Form 940), but Social Security, Medicare and income tax withholding apply as usual, with Form 941 each quarter and W-2s at year-end.
• Fees paid to individuals (instructors, designers, performers) generally require a 1099-NEC: for payments from 2026, only when they total $2,000 or more in the year ($600 for 2025 payments).
• Ministers: ministers are self-employed for Social Security and Medicare, so the church doesn't withhold those taxes. A housing allowance, approved by the board in advance, can be excluded from income tax.
• Volunteers: reimbursements need receipts. A flat "stipend" per event can look like wages.

Nonprofits in North Carolina watch three things: a charitable solicitation license or exemption, semiannual sales tax refunds, and collecting sales tax on their own sales. North Carolina nonprofit corporations don't file annual reports with the Secretary of State.

• Charitable solicitation license: soliciting the public in North Carolina generally requires a license from the Secretary of State's Charities Division, renewed each year, with fees scaled to contributions. Solicitations for religious institutions, and organizations receiving less than $50,000 in contributions a year that pay no officers, directors or solicitors, can apply for exemption, reviewed annually.
• Sales tax: pay, then claim a refund: North Carolina doesn't let nonprofits buy tax-free, but qualifying organizations (most commonly 501(c)(3)s) can claim back state and local sales tax twice a year. Get a refund account with Form E-585NPA, then file Form E-585: January–June by October 15, July–December by April 15 of the next year; claims more than 3 years late are lost. Electricity, telecommunications, motor vehicles and alcohol don't qualify.
• Your own sales: fundraising sales of food or goods generally mean registering and collecting sales tax (see our North Carolina sales tax guide).
• State income tax: organizations exempt federally are generally exempt from North Carolina income tax; unrelated business income may need a state return too.

Other states have their own rules, such as registration with the Attorney General's Registry of Charitable Trusts in California or the CHAR500 in New York. Check the rules wherever you solicit or operate.

Each stage has its own to-do list. The worst gaps are forming without applying, and applying without filing afterward.

• Situation A: still planning. Settle the type (501(c)(3), (c)(7) or another) and whether to incorporate at all or start under a fiscal sponsor; then incorporate, get an EIN and apply to the IRS within 27 months.
• Situation B: formed and exempt, but the books are a mess. Set up fund accounting, rebuild gift records and receipts, code expenses the way the 990 needs them, and file the 990 series on time every year.
• Situation C: years without a 990, or exemption revoked. Check your status on the IRS list of exempt organizations. If not yet revoked, catch up now; if revoked, reconstruct past filings and apply for reinstatement.
• Situation D: hiring staff, earning business income, growing. Run payroll (no FUTA for a 501(c)(3)), file Form 990-T for unrelated business income, move up to the 990-EZ or 990 at the thresholds, and check the North Carolina solicitation license.