A non-profit works much like any other business. To survive, it must provide customers with a valuable service, and take in enough money to fund operations. Unlike businesses that operate for financial gain, non-profits receive special tax benefits. Non-profits must serve specific public interest areas, and are required to reinvest would-be profits into related activities.
Items you will need
Write a business plan. A non-profit business requires detailed planning. Not only can a written business plan help organize your efforts, it can also help inspire contributors to donate finances and other resources. To be effective, a non-profit needs to fill a niche service not currently being served in the community. Be sure to read the requirements for 501(c) organizations before writing the business plan.
Incorporate. Before a business can receive an official non-profit designation, it must incorporate as a business. This means drawing up articles of incorporation, obtaining a federal EIN, and meeting all the other incorporation and licensing requirements in the state of incorporation.
File for 501(c) status from the IRS. The primary documents are: Form 8718 (the User Fee for Exempt Organization Determination Letter Request), and IRS Package 1023 (Application for Recognition of Exemption). Publication 557, which is available through the IRS website, explains how to fill out these papers. Copies of the company's incorporating documents are typically required with an application for non-profit designation.
Check eligibility for 501(c)(3). Donations to a non-profit business are not valid tax exemptions for the donor unless they are made to a 501(c)(3) organization. To obtain this designation, a company must show that it's operated exclusively for religious, charitable, scientific, public safety, literary, educational or amateur sports purposes, or for the prevention of cruelty to children or animals.
Keep detailed records. Non-profit organizations tend to be audited more than others, so keeping careful records is essential. Straying from the strict non-profit intention outlined in the original application, and failing to keep adequate records proving compliance are the most common grounds for revocation of non-profit status.
When incorporating, don't forget that non-profits need to obtain the same state or municipality licenses and permits as any other business. Starting a non-profit doesn't mean working for free. All employees of a non-profit can be paid the industry standard; some professionals may even be able to write off the value of their services to a 501(c)(3).