Starting a Nonprofit in Texas: The Overall Process
In essence, what most people identify as a nonprofit is an entity which has been recognized as a nonprofit by both the State of Texas (an essential first step) and the Internal Revenue Service. It is possible to simply incorporate within the State and not seek the Federal designation.
As noted on the Texas Secretary of State’s web site, “A Texas nonprofit corporation is not automatically exempt from federal or state taxes. To become exempt, it must meet certain requirements and apply with both the IRS and the Texas Comptroller of Public Accounts.”
Only nonprofit corporations which have achieved 501 (c) 3 status from the Internal Revenue Services can offer their donors the opportunity to deduct their contributions to that entity from their Federal income tax.
As Texas C-BAR notes in its How to Form A Nonprofit Corporation in Texas, “The formation and functions of a non-profit corporation are governed by the Texas Nonprofit Corporation Act. In addition, in forming a non-profit corporation, an organization will need to comply with the Internal Revenue Code, generally Section 501(c)(3), which governs when a charitable organization can obtain an exemption from federal taxes. ”
These are issues that require your further attention. For now, however, the “paper work” process (excerpted from How to Form A Nonprofit Corporation in Texas with our additions and direct links to appropriate forms and additional information):
To Obtain Nonprofit Status in Texas:
- Choose your proposed nonprofit corporation/ organization’s name.
- Check the availability of that name with the Texas Secretary of State’s Office SOS Direct online service
- Draft articles of incorporation, now referred to by the Secretary of State as Certificate of Formation.
- Submit articles of incorporation/ certificate of formation either online or by mail to the Texas Secretary of State. Once filed, the Secretary of State’s office will send you a “certificate of formation”.
- Apply for exemption from Texas sales, hotel occupancy, and franchise taxes from the Texas Comptroller’s office
To Obtain Federal Nonprofit Status:
- Obtain your Employers Identification Number (EIN). It can be submitted online or by mail. Your EIN becomes your Federal Tax Identification number.
- Submit IRS Form 1023 within 27 months of filing your articles of incorporation/ certificate of formation.
- $400 for organizations whose gross receipts do not exceed $10,000 or less annually over a 4-year period.
- $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period.
- For the current user fee amounts, go to IRS.gov and in the “Search” box type “Where Is My Exemption Application,” click on the link for that page, and in the second paragraph click on “user fee.”
Alternatively, you can do a search for “user fees” with the applicable year in the “Search” box in the top right. Finally, you can also call 1-877-829-5500.1023 Form 1023 Instructions