Seven Steps You Must Take BEFORE You Get An EIN For Your 501(c)(3)

Are you planning on starting your own Nonprofit in 2017?  If so, don’t apply for an EIN number first, like I did.

We received an early Christmas present from the IRS this year.  They sent us our letter certifying our ministry’s tax-exempt status!  I felt so excited and nervous that I had my wife open it and read it aloud to me.

Along the way, I did a few things right.  I also made a LOT of mistakes along the way. Yet somehow, we made it through.

learnersdictionary.com relievedOne of the biggest mistakes I made in setting up our non-profit was to start the process by applying for an Employee Identification Number (or EIN).  It was so easy!  It left me feeling the excitement that the dream of having our own mission agency was truly coming to pass!

However, a year later, I found out from our tax advisor that applying for an EIN number starts the countdown toward the month when you are required submit your 1023 Form to the IRS.  Also, from the day you obtain your EIN number, you are expected to submit forms 941 quarterly and 990 annually.  If you don’t know how to fill these out, or even that you must do so, there will be penalties to pay.

When I applied for an EIN number too early, I put in a lot of long hours in order to meet the deadline.

To cover myself, I must warn you that I am not a lawyer.  You should always consult a legal professional before taking a step as serious as establishing your own Nonprofit.

Despite the risk, I feel a sense of obligation to “give back” as others generously gave to me.  We started this Nonprofit on a shoestring budget.  I know what it’s like when finances are tight at the start, and how precious good advice can be.

To help you avoid some of the trouble and anxiety I endured along the way, here is a list of seven steps you should take before you apply for your EIN number.

Before you get your EIN Number: The Bare Minimum

This first part lists the seven things you really must accomplish before you get your EIN number.  To do otherwise puts the future of your Nonprofit into question.

1. Find a tax advisor

I was hoping that the person who helped me prepare our family taxes would be willing to help me with the taxes for my Nonprofit.

However, I needed to find a specialist who had helped form other non-profits in the past.  The whole process could be an entire blog post in itself!

If you don’t know someone already, sometimes you can find one by asking your local church or a Nonprofit like yours for ideas.

2. Open a Business Bank Account

This was another exciting first step for me.  However, I made the mistake of calling it a non-profit bank account on the day I opened it.  A few months later, they had to downgrade it into a business bank account until I was able to turn over our Articles of Incorporation to them.

In any case, having a separate bank account for the business is vital.  This is because business funds should never be mixed with personal funds.

3. Create a Purpose Statement

What good in the world do you wish to accomplish through your non-profit?  Take the time to write it all down so that you can explain it to your potential partners in this venture.  What you write will help you in choosing an excellent name and logo for your nonprofit.

4. Find a lawyer (or purchase litigation insurance)

The process of forming an IRS certified Nonprofit is complicated.  If we make a mistake in the way we go about it, we could end up owing a lot of money to the IRS.  And there is the risk that a competitor might take advantage of a loophole to bring you down.  That is why it is SO important to have a lawyer beside you who is willing to guide you through the process.  You can keep costs down by doing all the legwork yourself, or by purchasing litigation insurance so that you will have a lawyer by your side if something goes terribly wrong.

Do you need help finding a lawyer?  If so, please let me know.

5. Constitution and Bylaws

With the help of your lawyer, prepare your Constitution and Bylaws.  This is the document that will govern your Nonprofit.  And when you ask organizations to recognize your Nonprofit status, they will ask you to show it to them.

This process always goes faster when you use another Nonprofit’s Constitution and Bylaws as a model.  For us, one of our partner churches in New York graciously shared their Constitution and Bylaws with us.  This was a great help, and gave us a solid foundation.

If you could ask anyone to provide their Constitution and Bylaws as a guide in preparing yours, who would you ask?  Apparently, you can ask them.  Nonprofits are required to provide copies of their founding documents upon request.

So find the organization you strive to be someday.  Ask them for a copy of their Constitution and Bylaws, and their Conflict of Interest Policy.

Would be helpful for you if I shared our Constitution and Bylaws with you?  If so, please contact me so I can send them to you.

6. Choose a Board of Directors

If you wish to become a corporation, you will need a Board of Directors.  A Board of Directors will vote to modify, then accept your Constitution and Bylaws.  And even though you will likely be part of the Board, the Board will become your boss.  So choose your board members wisely.

I have a list of character qualities to look for in a Board Member.  If you are interested in receiving them, please contact me.

7. State Certification

Now you have a Board of Directors, and a Constitution and Bylaws that have been approved by the Board.  The next step is to register your Nonprofit with your state government.

To do this, your lawyer will help you locate and fill out the “Articles of Incorporation” for your state.  Once you have properly delivered this document to the proper office, the process should take only a few weeks.

Once you have received your Articles of Incorporation back from the State, you should go ahead and apply for your EIN number.

This article is already too big.  I haven’t yet had the time to share with you what to do once you DO have your EIN number.  I also thought of a few additional but optional steps to take before filling out your EIN number.

Are you interested?  If so, please let me know by leaving a comment below.

If you are working toward setting up your own Nonprofit, we would be glad to help you in any way we can.  We’d like to share with you samples of the forms we mentioned above.  We would also welcome the opportunity to answer any questions you may have.  Please leave your questions below, or contact us using our contact page.

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