Important Types of Grant Funding You Should Know About

Disclaimer: Although we do not provide legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). Visit our service pages to learn more about what Pearl Solutions can offer. 

Importance of Grants for Nonprofit Organizations

Grants are an incredibly important source of funding for nonprofit organizations. The funds are attractive for several reasons, but the biggest benefit that comes with securing grant funding is that in most cases you don’t have to pay that money back to the funder. 

Another reason grants are important is that they provide nonprofits with a sustainable source of income. When you know how much money you have coming in, it’s easier to allocate your funds and prepare an accurate budget. You’ll also be able to focus your other available resources on areas you might not have been able to invest in before. This all contributes to sustainable growth.

Winning a grant also attracts positive attention. When you receive a grant, this signals to other people—supporters, donors, potential partners—that a funder believes your mission is important and that your organization can achieve its goals. This vote of confidence provides an increase in legitimacy and credibility that may inspire other funders to award you a grant in the future. This attention may also help you grow your audience and expose your mission to people who might otherwise not have heard of your work. 

Keep reading to learn about the types of grants by source (where the money is coming from) and types of grants by goal (how the money must be used). 

Types of Grants by Source

Federal grants

As the name suggests, federal grants are a form of financial assistance provided by the U.S. government. Just a few of the organizations that provide federal grants include the U.S. Agency for International Development (USAID), AmeriCorps, the U. S. Department of Agriculture (USDA), the U.S. Department of Education (ED), and the U.S. Department of Health and Human Services (HHS). 

There are many different types of federal grants. Take education grants, for example. ED grants include Federal Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Iraq and Afghanistan Service Grants, and Teacher Education Assistance for College and Higher Education (TEACH) Grants. 

Grants.gov is a great resource for organizations looking for more information on finding and applying for federal grants. You can also research grants via sites like GrantWatch

Eligibility criteria for federal grants

All grants have certain eligibility requirements that organizations have to meet. One of the first things you should look for is the type of organization that is eligible to receive the grant. If your organization is a 501(c)(4) nonprofit and only 501(c)(3) organizations are eligible to receive that grant, it’s not the grant for you. 

Don’t forget that you need to meet every single one of the eligibility requirements to be considered for the grant. Your project may be worthy and your proposal might be compelling, but that won’t matter in the end. Applying for grants is a time-consuming process. Don’t waste your time and resources on applying for grants that you have zero chance of receiving. 

How to apply for federal grants

After you research your grant and confirm that your organization is eligible to receive it, you can start the application process. You should be able to find information on applying for a grant on the grant-making body’s website. You may be able to apply directly through them, but some agencies direct applicants to apply through sites like Grants.gov. 

When in doubt, defer to the grant-making organization or department and reach out to them for more information. 

State grants

State grants are grants offered by agencies or organizations at the state level. 

Eligibility criteria for state grants

Understandably, you can only win a state grant if you apply to the right state agency or organization. When checking your eligibility, pay attention to which organizations can apply: Can you apply if you operate in that state or if you’re registered in that state? You might operate in Nebraska, but if your organization isn’t registered there—if you didn’t start and incorporate it in that state—you might not be eligible to receive one of their state grants. 

How to apply for state grants

As you know, the application process varies from grant to grant. The grant-making agency or body’s website will include information on how to apply for a state grant. If you have questions, reach out to them directly and make sure you’re applying through the correct channel.

Corporate grants

In addition to federal grants and state grants, your nonprofit should consider applying for grants provided by corporations. 

What is a corporate grant?

Corporate grants are simply grants offered by corporations. An example includes Google Ad Grants, which is a type of grant offered by Google. 

Benefits of corporate grant funding over other types of grants

There are several benefits that come to applying for funding from corporate grants. 

First, corporations may require fewer conditions or have fewer strings attached to the grant money. That means you have more flexibility to distribute the corporate grant funds. The applications also usually require fewer steps to complete or “hoops to jump through” than government grants. 

Corporations often want to promote their corporate social responsibility initiatives, which means they could introduce your organization and mission to a broader audience that may include new supporters and donors. Some corporations even donate a portion of their proceeds to their nonprofit partners. 

Corporations with bigger budgets have the flexibility to offer grants to nonprofits that address a variety of causes. This means that your organization’s mission doesn’t necessarily have to line up perfectly with what the corporation does or sells. With this increased availability of funds, you may find that these grants are less competitive than other grants like those from foundations. 

The corporation may also encourage its employees to volunteer with or donate to your organization and include incentives like volunteer time off or matching donations in their benefits package. 

These are just a few of the benefits that make this type of grant funding more attractive than other types of funding. 

Foundation grants

Foundation grants are grants provided by organizations that are usually formed specifically for a philanthropic purpose. Examples of foundations include the Bill & Melinda Gates Foundation, the Ford Foundation, and the Rockefeller Foundation. Many corporations form foundations to manage their corporate social responsibility efforts. An example of this is The Coca-Cola Foundation, which is the global philanthropic arm of The Coca-Cola Company. 

These grants are usually more competitive than corporate grants. 

Types of Grants by Goal

In addition to looking for grants by source, you can look for grants by goal. In this case, you will want to look at your mission and the way you approach your work.

Research grants

As the name suggests, research grants are grants used to support research efforts. Consider the type of research you want to conduct and search for organizations that want to fund that type of research. Again, make sure you only apply for grants if you’re eligible to receive them. If a grant is only available to organizations doing research in one state and you’re not working in that state, don’t apply to that one.

Conditional grants

Conditional grants are grants that will only be awarded to a nonprofit if it meets certain conditions. Although they sound similar, conditions are not the same as eligibility requirements. Think of eligibility requirements as the first hurdle a nonprofit has to jump. You have to meet those in order to be in the running for the award. 

Let’s say your organization meets all of the eligibility requirements. You’ve submitted a grant proposal, and the funder has decided your organization is worthy of receiving the grant funds. If the funder will only award the grant to your organization if it meets one more condition or has one more barrier to cross, the foundation is offering a conditional grant. 

Capital grants

Typically, capital grants are large grants that are designed to help an established nonprofit organization increase its capacity to carry out its mission. An example of a capital grant would include providing a nonprofit with enough money to “break ground” on a building that will eventually allow the nonprofit to double the number of people it serves.

Project grants

Project grants are grants designated for a specific project. In other words, these grants are restricted. If you win a project grant that is designated only for an end-of-year gala, you can’t use those funds on anything else. 

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions. 

How To Grow a Nonprofit

Disclaimer: Although we do not provide legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). Visit our service pages to learn more about what Pearl Solutions can offer. 

How to Grow a Nonprofit 

After you’ve gone through the process of setting up a nonprofit organization and securing 501(c)(3) or 501c3 status, it’s time to grow your organization and start making an impact. Keep reading to find our recommendations for how to grow a nonprofit in a sustainable way. 

Establishing a Solid Foundation

In order to grow, you need to build on a solid foundation. When it comes to nonprofits, that means focusing on your mission statement, organizational goals, board of directors, budget, and financial plan. 

Creating a clear mission statement and organizational goals

A clear mission statement is one that easily communicates to supporters and donors what your organization is, who it serves, and how it serves them. 

Here are some examples of clear mission statements:

The Smithsonian Institution 

The Smithsonian Institution is the world’s largest museum, education, and research complex, with 21 museums and the National Zoo—shaping the future by preserving heritage, discovering new knowledge, and sharing our resources with the world.

What is The Smithsonian Institution? It’s the world’s largest museum, education, and research complex, which includes 21 museums and the National Zoo.

Who does The Smithsonian serve? The nonprofit serves everyone in the world. 

How does it serve them? The Smithsonian shapes the world’s future by preserving heritage, discovering new knowledge, and sharing resources. 

St. Jude Children’s Research Hospital 

The mission of St. Jude Children’s Research Hospital is to advance cures, and means of prevention, for pediatric catastrophic diseases through research and treatment. Consistent with the vision of our founder Danny Thomas, no child is denied treatment based on race, religion, or a family’s ability to pay.

What is St. Jude? The nonprofit is a children’s research hospital. 

Who does St. Jude serve? It serves children affected by pediatric catastrophic diseases. 

How does St. Jude serve them? St. Jude works to advance cures and means of prevention for pediatric catastrophic diseases. The organization provides children with treatment regardless of race, religion, or their family’s ability to pay. 

Public Broadcasting Service (PBS)

The Public Broadcasting Service is a membership organization that, in partnership with its member stations, serves the American public with programming and services of the highest quality, using media to educate, inspire, entertain, and express a diversity of perspectives. PBS empowers individuals to achieve their potential and strengthen the social, democratic, and cultural health of the U.S.

What is PBS? The nonprofit is a membership organization that works alongside member stations. It provides the American public with programming and services with the goal of empowering individuals to achieve their potential and strengthen the social, democratic, and cultural health of the U.S. 

Who does PBS serve? PBS serves the American public.

How does PBS serve them? It provides them with programming and services of the highest quality, using media to educate, inspire, entertain and express a diversity of perspectives. 

After you draft your mission statement, share it with your board of directors, employees, potential supporters, and those you hope to serve. Do they have a clear understanding of what your organization does and how their donation or support helps further your goals? If so, you’re in a good place. If not, keep working on it. 

Developing a strong board of directors

Your board of directors is a group of individuals who help guide and grow your nonprofit. They do this by defining its purpose, supporting the nonprofit CEO and/or founder, assisting in fundraising and financial planning, measuring success, and advising on how to grow the organization. The board must also ensure that the nonprofit is operating in an ethical way and fulfilling legal requirements as determined by the local, state, or federal government. 

While nonprofits have some flexibility when it comes to what their board looks like—who can serve on it, how many members you have, how often the board meets—there are certain requirements that board members must meet as they perform their duties. 

So, how do you choose your board members? How do you develop a strong board? Start by thinking about people you trust to give advice on business, fundraising, and/or your specific cause. When in doubt, talk to other nonprofit founders and ask them how they went about choosing their board members. 

Tip: One of the most important things you can do to ensure the success of a board is to make sure members have clearly defined roles and responsibilities. Define these in your bylaws or articles of incorporation and, if necessary, with a contract you draw up with board members. 

Effective budgeting and financial planning

In order to grow, you need to determine what growth looks like and what financial assets it will take to grow in that way. For example, let’s say you want to grow by creating a new program. How much will it cost to bring that program to life? This should be taken into account in your budget and added to your strategic plan. By keeping your growth plan in mind, you can set accurate fundraising goals and develop strategies to meet those goals.

Building a Donor Base

In order to make an impact, you have to find a group of people to provide your organization with financial support. This group is also known as your donor base.

Identifying potential donors and major gift prospects

How you bring in new donors will depend on how your organization raises funds or what “works” for you and your supporters. Have you found success through posting links to donate on social media or throwing local events? Have you seen an increase in new donors with direct mail campaigns? Look at what has worked for you in the past and see how you can amplify those efforts. You should also test out new means of fundraising to see if there are other avenues that will attract new donors to you. 

When it comes to major gifts, you first need to determine what the minimum threshold is or what constitutes a major gift. To identify major donor prospects, look at your existing audience and focus on the people who are close to that threshold. When the time is right, ask them to make another, larger donation and become a major donor. 

In order to identify new major donors, talk to your board members and others in your community. Do they know of people or organizations looking to make major gifts? Do any of those people or organizations have a personal connection to your mission or have goals that are similar to yours? They may make good major donor candidates.

Cultivating relationships with individual donors and major donors

Identifying donors is one thing, but it’s not the only key to fundraising success. Once you know who they are, you have to cultivate meaningful relationships with them. 

The more connected someone is to your organization, the more likely they are to donate to support your cause. This isn’t that different from growing relationships on a personal level. You want to show that you care about the person beyond what they can provide to you and that you know what matters to them. You can do this in many ways, but an important one is to engage with them throughout the year—not just when you’re soliciting a donation. 

An important thing to keep in mind is to never assume that you know what motivates someone to give. Sometimes it’s best to reach out to hear from them directly. You might notice that certain “asks” are more effective than others. 

While every donation counts and all donors are important, you usually have to invest more time with someone in order to convince them to invest more deeply in your nonprofit. If you have the capacity, you may want to hire someone whose main responsibility is building relationships with major donors and major donor prospects. 

Finally, make sure all donors know exactly how their donations are used and how their funds move your mission forward. This will help them feel an even deeper connection to the work you do and will likely motivate them to give again. 

Engaging with the donor community through targeted social strategies

Some nonprofits see more donations come in offline through things like direct mail campaigns, but many nonprofits today see a significant amount of donations come through online. One way to increase your online support is to engage with your donors on social media. 

Before you go “all in” on one channel, remember that it’s important to go where your donors and future donors are. You might want to focus all of your time on X (formerly Twitter), for example, but that may not be the best use of your resources if most of your donors spend time on Instagram.

Once you know where they are, come up with targeted social strategies to engage with them. This might include sharing links to your donation pages, telling stories about the people you serve, or buying ads that will educate and inspire them to learn more about the work you do.

When considering your online fundraising strategies, think beyond social media. How are you engaging with your donor community via email? What opportunities are you not taking advantage of? How can you start to interact with them and cultivate deeper relationships via that channel? 

Given the ever-changing nature of online media and platforms, flexibility is key. Measure your success throughout the year. If you realize that a certain strategy isn’t working for one platform, try a new tactic. 

Fundraising Efforts

Here’s how you can grow your nonprofit through your fundraising efforts. 

Developing a comprehensive fundraising plan

The best way to meet your goals is to sit down with your board members and other stakeholders and develop a comprehensive fundraising plan. Your plan should include different tactics and strategies to target new and existing donors. Think about who your donors are and how you communicate with them. How will you reach offline donors? What about online ones? How will you engage with them over the course of the year?

Make sure you choose fundraising strategies that “pay off” or that are worth the expense. For example, if you want to throw a fundraising event but find that you won’t bring in enough funds to cover the cost of renting a venue or paying for catering, that isn’t a good use of your resources. 

You can have the most comprehensive plan in the world, but it will only work if you can execute it successfully. Once everyone is in agreement on how to move forward, determine who will be responsible for each strategy and how they will measure success. 

Generating campaign support and awareness

In order to bring in new donors or drive more excitement among existing donors, create nonprofit marketing campaigns that will educate and inspire your supporters. One way to do this is to take advantage of existing “awareness days.” 

For example, if your cause is supporting spay and neuter clinics, you can create a campaign that takes place on National Pet Day, National Dog Day, or National Cat Day. When posting on social media, create a hashtag for your campaign or use an existing one so people interested in that cause can find your posts. 

You can only reach so many people on your own. To generate awareness, think of how you can engage your existing supporters and motivate them to get their friends and family members to learn more about your cause or make a donation. You can do this through something like a peer-to-peer fundraising campaign. 

Utilizing online donation platforms and email marketing to reach a wider audience

If you use an online fundraising platform, you can create donation pages on your website and add donate buttons in different places. You can also raise money through social media platforms by using their existing tools. 

For example, if you want to raise money through Instagram, you have a couple of options. You can add a link in your profile or your story and direct people to a donation page. When possible, ask people to share links to your website, campaign pages, or donation pages so your content reaches a wider audience. If you take the necessary steps and are eligible, you can also encourage people to add a donation sticker to their story and solicit donations from their followers. 

As for emails, think about the ones you get from for-profit businesses. How do they engage with you? How do they inspire you to buy their products or educate you about their company? You can use the same principles that they do when interacting with your audience. 

The key here is to communicate with your supporters on a regular basis and do so in a way that shows you value them as people and not just as people who donate. Don’t just email them when you want a donation; reach out regularly to update them on how their support is making an impact on the cause and what your plans are for the future. If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions.

Tips for Starting a Nonprofit in New Jersey

Disclaimer: Although we do not provide legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). Visit our service pages to learn more about what Pearl Solutions can offer. 

You see a problem that needs addressing, and you want to be part of the solution. More specifically, you have an idea for a nonprofit organization that could make a real impact. 

But how exactly do you create a mission-driven organization? How do you go from idea to impact? 

The first thing you need to do in order to turn that dream into reality is learn about the state and federal guidelines governing nonprofit organizations. This is true regardless of whether or not you want to make an impact on the local, state, national, or international level. 

Why is that? Well, in order to establish a nonprofit organization, you have to follow a certain set of steps at the state and federal level. The Internal Revenue Service (IRS) explains the role the state government and federal government play in the process

“State law governs nonprofit status, which is determined by an organization’s articles of incorporation or trust documents. Federal law governs tax-exempt status. The Internal Revenue Code (IRC) specifically refers to exemption from federal income tax.”

The process of obtaining nonprofit status varies from state to state. For example, some states require that founders submit more paperwork; some states require less. In this post, we provide an overview of the steps you need to take when starting a nonprofit in the state of New Jersey

Initial Steps

After researching the various types of organizations you could form, you decided to create a New Jersey nonprofit with 501c3 or 501(c)(3) tax-exempt status

To organize a business in New Jersey and apply for nonprofit status, you must: 

In this post, we walk you through these initial steps: 

  1. Choosing a business name
  2. Organization and filing
  3. Creating bylaws and articles of incorporation
  4. Selecting a board of directors

Keep reading to learn more about each step. 

Tip: If you have more questions, this Q&A from the Department of the Treasury’s Division of Taxation may have the answers. 

Choosing a Business Name

Before you can establish your nonprofit, you need to choose a business name. You have a decent amount of flexibility when choosing a name, but New Jersey does have a few stipulations. In New Jersey’s statutes, you’ll find information on what is required and what the restrictions are.

When deciding on a name, it may be helpful to use the state’s business name availability tool or business formation online service

Organization and Filing

Most likely, you have already decided to incorporate, but it’s worth mentioning that New Jersey doesn’t require you to incorporate your nonprofit. Founders who incorporate their nonprofits usually do so in order to limit their liability and qualify for tax-exempt status. 

If you do choose to incorporate, you need to file a Certificate of Incorporation with the New Jersey Division of Revenue, Corporate Filings Unit or the Public Records Filing for New Business Entity form and pay any associated filing fees. As of March 2024, the fee is $75. 

The Public Records Filing for New Business Entity form is in the New Jersey Complete Business Registration Package available from the Division of Revenue. The supporting documents you submit will include information on your organization’s purpose and other nonprofit provisions.

Most 501(c)(3) organizations are required to register with the New Jersey Charities Registration Section. They usually require that you submit a completed and signed registration form, registration fee payment, IRS Form 990 and certified audit, amended formation document, and any IRS correspondence reported during that fiscal year. 

Tip: Always confirm that you’re filing the most updated version of a form. New Jersey’s Department of the Treasury has more information about getting registered and starting a nonprofit

Creating Bylaws and Articles of Incorporation

Your bylaws are simply the rules that govern your nonprofit. Your board of directors or trustees must follow them when running the nonprofit. These are generally voted on by the members at the first board meeting. 

The articles of incorporation usually include things like the name and address of your registered agent, your business name, and the purpose of your business. You can file your Certificate of Incorporation online. This form may also be called a Certificate of Formation or Certificate of Authorization. 

Selecting a Board of Directors

New Jersey requires that you have at least three members on your board of trustees or board of directors. These members hold the positions of Treasurer, Secretary, and President. You can have up to ten members on your board. 

You have to choose the members early in this process because you’ll need to list their names and addresses on some of the forms you’ll file. 

Legal Requirements

Like every state, New Jersey has legal requirements for nonprofits. You will also have to submit certain documents and abide by certain statutes to receive and maintain tax-exempt status. 

Registering With the State of New Jersey

The state of New Jersey requires you to register your business. In order to do so, you will file your certification of authorization or incorporation and then file that certificate online. 

Applying for Tax Exemption With the IRS

To apply for tax-exempt status, you need to file certain forms with the IRS. 

Obtaining a Federal Employer Identification Number (FEIN)

New Jersey requires every business to have a Federal Employer Identification Number (FEIN) to operate in the state. You will also need this number to open a bank account in your nonprofit’s name. To get your FEIN, you will file an online form (Form SS-4) through the IRS

Compliance and Reporting

Annual Reporting Requirements

At the federal level, nonprofits must file an annual exempt organization form (Form 990). Some nonprofits will have to file additional reports with the IRS. 

At the state level, New Jersey requires that nonprofits file an annual report if they are incorporated or required to register with the New Jersey Charities Registration Section. The New Jersey Division of Revenue, Corporate Filing Unit will send you this form.

Maintaining Tax-Exempt Status

In addition to applying for and receiving tax-exempt status, you will need to maintain that status. The IRS provides information on ongoing compliance

Keeping Up With Legal Documents and Filings

We recommend that you consult with legal and tax professionals who are based in New Jersey or familiar with New Jersey statutes. They should be able to advise you on keeping up with all state and federal filing requirements.

Fundraising and Financial Management

Setting Up Bank Accounts

If you choose to set up a bank account, the bank will ask you for your business name, its FEIN, and information about your registered agent. Your bank may ask for additional documentation confirming your nonprofit status. 

Developing a Fundraising Plan

Before you start the process of fundraising, you should develop a comprehensive fundraising plan for the nonprofit as a whole and for individual fundraising campaigns or events. Your plan will include your goals and the strategies you’ll use to achieve or surpass them, as well as any associated costs. 

Managing Finances and Expenses

Your board will determine how often you create and approve an annual budget and how the nonprofit’s funds are allocated. The Treasurer is usually responsible for managing the budget over the course of the year. 

Your organization will also track things like individual donations and details of any grant funding you receive.

Certain nonprofits are specifically listed as exempt under the New Jersey sales and use tax law: volunteer fire companies; rescue, ambulance, first aid, or emergency companies or squads; veterans’ organizations and their auxiliaries; and associations of parents and teachers of an elementary or secondary public or private school. 

Resources and Support

Utilizing Online Tools and Resources

There are a number of online tools and resources you can utilize as you navigate the process of creating a New Jersey nonprofit. 

These online tools and resources include: 

Seeking Professional Assistance

This post provides a brief overview of the initial steps you need to take in order to create a nonprofit in New Jersey. It’s not intended to offer legal or financial advice. 

To ensure you’re in compliance with New Jersey’s laws and federal laws, you should seek assistance from legal and financial professionals who work in New Jersey and are familiar with this process.

Networking With Other Nonprofits

You can start a nonprofit by yourself, but we encourage you to reach out to other people running nonprofits in New Jersey to learn from their experiences. You may get insights that you can’t find online and save yourself time, money, and other precious resources. 

Conclusion

Once you’ve completed your research and made decisions about your name, organization structure, and board of trustees, you can start the process of creating a New Jersey nonprofit. 

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions. 

How to Write a Grant Proposal

What is a Grant Proposal?

You’ve heard how important grant funding is to an nonprofit organization, but how do you get it? You write a grant proposal. 

The two words are easy enough to understand on their own: a grant refers to the funds your organization is applying for and a proposal refers to the document or collection of documents that communicate why your organization should receive the grant. Grant proposals may also be referred to as grant applications.  

However, the process of writing a grant proposal is much more complex than the name suggests. 

Below, we’ll explain how to write a grant proposal. Specifically, we’ll cover the benefits of writing one, the stages of the grant writing process, and what you need to know in order to select, apply for, and win the grants that will best serve your organization’s goals.  

Benefits of Writing an Effective Grant Proposal

Pursuing grants can be an important part of your fundraising strategy. 

Why? Here are just a few reasons: 

When you decide it’s time to pursue grant funding, you can begin the grant writing process.

Research and Planning

There are millions of dollars available through different grant funding opportunities, which means there are lots of opportunities for you to apply for and receive grant funding. But which grants should you apply for?

Identifying Potential Funders

The first crucial step in the grant writing process is to identify which grants you want to pursue. While it may be tempting to pursue as many grants as possible, this is not the way to approach your grant funding strategy. 

The best use of your time and money will be to pursue the grant opportunities that you consider to be viable. In other words, you should only apply for grants that your organization has a chance of winning. 

Understanding the Funder’s Requirements

If you don’t meet all of the requirements in the call or solicitation for grant proposals, you’ll likely be disqualified from the pool of applicants. That means you’ll have wasted those valuable resources you allocated to applying for this grant.

Once you have a list of grants you want to pursue, you need to carefully look at the funder’s requirements. What are they and how will your organization meet them? 

When applying for a grant, it’s important to consider things like the application period; this is the timeframe during which organizations can submit proposals. You should also pay close attention to the documentation you need to submit as part of the application. Do you have all of those documents on hand? If not, can you get them in time? 

As you go through the grant writing process, take advantage of any opportunity you have to tailor your application to the funder’s goals. How can you do that? If your project aligns with the funder’s mission, you should highlight that connection throughout your proposal. 

For example: Say you’re going to use the funds to build a playground for children in your local community. When you’re researching grants to apply for, you notice that the funder supports after-school programs. Your organization and the funder are both concerned about where children go after school. You should talk about this connection in your project description.

Clarifying Your Project Goals and Objectives

Although some funders offer organizations more flexibility when it comes to using the funds, many of them allocate the grant money to be used for a specific purpose. 

The best way to satisfy this requirement—that your organization uses the grant money in the intended way—is to clarify your project goals and objectives. When you clarify your goals and objectives and the strategies you’ll use to achieve them, it’ll be easier for you to explain why your organization should receive the funds. 

You may have decided this earlier in the process, but if not, this is the time to choose the person who will write the proposal. Because this is a complex process, you may want to hire a team with the expertise needed to write proposals that win grants. 

Gathering Supporting Documents and Information

Once you clarify your goals and objectives, you need to gather proof—supporting documents and information—that show how you’ve properly stewarded funds or achieved program goals in the past.    

Think about this part of the process as a trust-building exercise. The funder may not be familiar with your organization. Even if they are, they still need to be convinced that your team is capable of deploying the funds wisely. 

Your grant proposal is an opportunity for the funder to get to know your organization, your mission, and your credentials. When deciding which supporting documents and information to include, you should choose the ones that will make the funder believe they can and should trust your organization with the funds. 

Crafting Your Proposal

Once you’ve chosen which grants you want to apply for, clarified your goals and objectives, and gathered your supporting documentation, it’s time to start writing.

Creating a Project Description

This is the chance for you to tell a story about your organization and how the funds will help you change the community you serve. 

You’ll be competing with other organizations to receive these grant funds. Your project description needs to be as unique and detailed as possible in order to stand out. 

Ask yourself questions like: 

When thinking about ways to persuade the funder, look at the stories and stats you highlight in other successful fundraising campaigns. If you can get to the heart of why your project needs to be funded, you can get to the hearts of the funders. 

Preparing a Budget Summary and Breakdown

Like other donors, grant funders want to know how you’ll use their funds. This is another trust-building opportunity. In your budget summary and breakdown, you’ll explain how much money you need, why you need it, and how you’ll spend it.

When writing and reviewing your budget, put yourself in the funder’s position. Do you have any questions about how your organization will use the funds? Did your organization include all of the information that the funder requires? 

When in doubt, be as specific as possible. This will reassure the funder that your organization has a plan to bring your project to life. 

Developing an Evaluation Plan for Your Project

In addition to clarifying your goals and objectives, you need to define how you’ll measure your success. You’ll do this through an evaluation plan.

Why do you need an evaluation plan? Understandably, the funder will want to know that you’re using the funds as intended and are making progress on your project. 

Look at your goals and objectives. How will you know that you’re making progress and are on track to achieve them? How will you track or measure those metrics during the project term? 

Writing a Cover Letter or Executive Summary for the Proposal

Funders have to sort through a large number of proposals. That’s why they usually ask organizations to provide a cover letter or executive summary with their grant proposals. 

In your cover letter or executive summary, your goal is to quickly explain what your organization does and why you’re applying for this grant.  

Overview

This is where you’ll share a little bit about your organization and your project. 

Problem Statement

Ultimately, your project is trying to solve a problem or address a need. This is where you’ll describe that problem or need and explain how you’ll use the grant funding to address it. 

Solution

Your project or program is your solution. This is where you’ll briefly define what your project or program is and how it will solve or help address the issue you described in the problem statement.

Expected Outcomes

What happens when you spend the funds and/or complete the project? To put it bluntly: What return should they expect on their investment? 

Again, be as specific as possible. Make it easy for the funder to understand exactly what your vision is so they can buy into it too.

Finalizing Your Grant Application

Before you submit your proposal, do one final comprehensive review of the package you’ve put together. 

Submitting a Complete Application Package

When reviewing your proposal or application package, ask questions like:

If possible, ask someone who hasn’t worked on the proposal to review it before you submit it. They may catch small errors that you didn’t notice. 

Once you’re confident you have everything ready to go, submit it and celebrate the hard work your team put in to pursue this opportunity.

Pearl Solutions can assist you with your grant writing services, as well as help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). You can find more information about the services we provide at Pearl Solutions here.

Grant Writing for Nonprofits: Best Practices

Understanding Grant Writing

The key to winning a grant is to write and submit a grant proposal that convinces the funder that your organization is the most deserving of their funds. However, grant writing involves more than just coming up with a few paragraphs about your project and filling out an application. It takes a lot of skill and experience to write proposals that win grants. 

Where do you begin? What do you need to understand about grant writing and the process of submitting your proposal? That’s what we cover in this post. Below, you’ll find our grant writing best practices.

Before we dive in, we want to remind you that Pearl Solutions is here to help you write grants that will bring your projects to life. Over the last decade, we’ve secured $50+ million in funding for our clients, and we have a 90% success rate for first-time grant applications. 

If you want to work with a team that understands these best practices and supports you from step one of the application process, we’d love to hear from you. Feel free to contact us to learn more about grant writing services.

Grant Writing Best Practices for Nonprofits

Understand and align with the funder.

Your organization won’t be the only one applying to receive a grant. Why should the funder support your project when there are so many incredible project ideas in front of them?

One way to improve your odds of winning a grant is to understand the funder’s mission and align it with your own. 

Ask yourself questions like: 

Think beyond the application requirements and get to the heart of why the funder is providing the funds in the first place. This will make your application stand out in a pool of competitive proposals. 

Develop a clear and impactful project plan.

You might have the best idea in the world, but if you can’t articulate what the project is, why you want to complete it, and how you would use the grant funds to do so, you won’t win the grant.

Your proposal should have a clear plan that includes a strategy to complete the project and report on its success. Anyone who reads your application should understand what it is you’re trying to do and how you plan to do it, even if they’re not familiar with your work. 

Next, think about your project’s impact. The funder knows why you need funds: You have expenses to cover. Why should they give the funds to you? Why should they cover your expenses? This “why” is just as important. 

In your proposal, explain how the project will positively change your community or impact a specific cause. Think back to the funder’s personal or organizational mission and align your proposal with the impact they want to have. 

Demonstrate organizational capacity and sustainability.

The funder might believe in your project, but they won’t fund it if they don’t believe that your organization can complete the project. You can show them that you will properly and successfully steward their funds by demonstrating your organization’s capacity and sustainability.

When thinking about organizational capacity and sustainability, ask yourself: 

Those are the questions you should keep in mind and address in your organization’s project plan. 

Write clearly and review thoroughly.

What does it mean to write clearly? In this case, it means answering questions in the most compelling and direct manner possible. 

Consider these things:

Once you’ve completed your application and compiled all of your required documentation, it’s time to review it thoroughly. Here are a few things to pay attention to when reviewing your grant application. 

Check for spelling and grammar errors. You can do this by using the Spelling and Grammar Check tools built into Microsoft Word or Google Docs. You should then have someone check manually or read the proposal and flag any errors they notice. 

Look for common mistakes that may not come up on an automatic spelling and grammar check. These include using the incorrect version of words like their and there and its and it’s. 

Confirm that your facts are accurate. Look at the information you provided in your proposal. Is it factual or subjective? Do you have statistics to back up your claims? Have you cited sources to support your claims? 

Confirm that you’ve spelled names, titles, and organizations correctly. It may seem like an obvious suggestion, but this is too important not to mention. You don’t want to give the impression that you don’t care about the little things or that you don’t respect the people involved in this process.

Ask someone else to review the application. They will bring a fresh perspective to the table, which can be valuable considering you will have been “in the weeds” and may not pick up on every single thing that you need to address. When you ask the person to review the application, give them specific instructions. Ask them to flag any concerns or questions they have or errors they catch. If there’s something in particular that you’re worried about, ask them about that and see what they think.

Conduct your own final review. You should only submit the application when you feel confident that there are no other improvements you could make. 

Build relationships and learn from feedback.

If you’re lucky, a funder will provide you with feedback on your application. This is an incredibly valuable opportunity because you’ll know what you need to do in order to turn in a stronger and more competitive grant proposal in the future. 

This can also be a chance to get to know the funder on a deeper level and establish relationships that may benefit your organization in the future. 

Main Steps in the Grant Writing Process

Although the specifics of your proposal will vary based on the funder’s requirements, the steps of the grant writing process remain the same. 

Research and identify potential grants.

There are so many grants out there, and you don’t have time to apply for each one. How do you choose which grants to pursue? 

It might be tempting to apply for as many as you can, but that won’t be a good use of your resources. As you conduct your research, identify potential grants that you consider to be viable and choose ones from that list. The goal is to spend your time and resources on applying for grants that you have a chance of winning. 

For example, if you’re not supporting education initiatives, you probably shouldn’t apply for education grants. The same goes for government grants. Instead, look for funding opportunities that align with your mission and goals. The funders behind those grants will be the ones who are most likely to invest in your project. 

If your organization isn’t a 501(c)(3) organization, double check the requirements. Some funders only open grants up to organizations with this status.

Reminder: Looking for expert support? When you work with our team, we conduct thorough research and present only the most viable options to you. We also register your organization in key governmental databases. 

Learn more about our grant writing services.

Understand the requirements and guidelines.

Before you choose a grant and start writing your proposal, look at the application requirements and guidelines. Is your organization eligible to receive the grant? Can you provide all of the required information or supporting documentation? Can you complete the proposal and submit it by the deadline? If not, don’t apply for that grant. 

You might think that your proposal can sway the funder to consider your application, but that’s not the case. It won’t matter what you include in the proposal if you don’t meet the requirements or follow the guidelines because you will be automatically removed from consideration.

Develop a project plan.

When applying for a grant, you’re likely applying to receive funds to complete a specific project. Naturally, the funder will want to know what that project is, why you need the funds, and how you will use them to bring the project to life. This is what you should cover in your project plan.

Write the proposal.

With this plan in place, you can begin writing the proposal. Go through and answer every question and respond to every prompt in the application. Remember that your proposal should be as compelling and as direct as possible. 

Reminder: You can learn more about our grant proposal writing services on our website. 

Prepare a budget.

How much will it cost to complete your project? How exactly will you spend those funds? Prepare a budget that explains your anticipated expenses in a way that shows the funder that you understand your needs and have a plan for meeting them. 

Review and edit the grant proposal.

You probably won’t be able to go back and change something after you submit the proposal. As such, you should only submit it when you’re confident that it’s as strong as it can be. See the advice above for guidance on reviewing the proposal. 

Submit the proposal.

Follow the grant guidelines and submit your proposal and any requested documents in the format requested by the funder. Make sure you keep the deadline in mind and submit it before that date and time.

Follow up with potential donors.

When it comes to communicating with funders and donors, think about what information you would want to have if you were in their position. They should know how you plan to spend their funds and, when possible, where you are in the process of completing the project. 

Manage the grant.

Although writing and submitting a grant proposal is quite a feat, you’re actually just getting started if you win the grant. 

Think about this as the stage where you begin developing a deeper relationship with the funder. The more clear your expectations and responsibilities are, the easier it will be to work together.

When managing the grant, ask questions like: 

Evaluate your progress and report on your successes.

Every project is different, which means you’ll evaluate and measure success based on your unique situation. Work with the funder to define what success means and what information they want to see as you deploy the funds and start working on the project. 

Even if you’re only required to submit a report at the end of a certain time period, we recommend communicating regularly with the funder so everyone is on the same page.

Maintain relationships with funders.

Just because your project is complete doesn’t mean you can’t work with the funder or communicate with them in the future. 

Treat your new relationship like you do all relationships and stay in touch. They’ve proven that they’re invested in the success of your organization, and they will be more likely to support your mission in the future if they know what your organization is doing and how they can help.

When appropriate, think about what you can do to make this a mutually beneficial relationship.

Conclusion

The grant application process is daunting, but you will have an easier time and increase your odds of success by following these best practices.

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions. 

Can You Start a 501c3 by Yourself?

Can You Start a 501(c)(3) Organization by Yourself?

Disclaimer: Although we do not provide legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). Visit our service pages to find out more about what Pearl Solutions can offer. 

You want to create a nonprofit or mission-driven organization. That means you’re likely interested in applying for 501(c)(3) status. 

If that’s the case, you now have to make an important decision: Do you try to do all of that work by yourself or do you tag in a team of experienced experts who can help you navigate the process? 

Working With Pearl Solutions vs. Moving Forward Without Professional Support

Can you start a 501(c)(3) by yourself? Absolutely. Many people choose to set up their 501(c)(3) organizations on their own. 

As you’ll see below, there are many steps* involved in this process. That’s why we believe that you should bring on experts who can confidently guide you along the way. Working with a team of dedicated and knowledgeable professionals will save you time and help you avoid costly mistakes.

Learn more about our grant writing services

Brief Overview of 501(c)(3) Tax-Exempt Status

Before we talk about forming a 501(c)(3) organization, we want to make sure we’re on the same page about what we mean by the 501(c)(3) designation. What is a 501(c)(3) organization? What does it mean when you say you want to have 501(c)(3) status? 

As explained in this blog post, when you apply for 501(c)(3) status you’re applying for tax-exemption status under section 501(c)(3) of the Internal Revenue Code (IRC). There are many benefits to applying for and maintaining this status. Notably, donations to your organization would likely be tax-deductible. 

Steps to Starting a 501(c)(3) Organization

Before you can apply for 501(c)(3) status, you must:

Keep reading to learn about each of those steps. 

Choose a Name for the Organization.

This might be the easiest part of the process for you, especially if you’re good at creating clear and meaningful names for organizations, campaigns, or products. 

If you need some help thinking of a name, we recommend that you think about:

For example, let’s say you want to start an animal welfare organization. We recommend looking at other nonprofits that are dedicated to the same cause. 

What other nonprofits support animals and how do they do that? Think broadly: Do they build shelters? Do they work with shelters to promote adoption? Do they offer free spaying and neutering services? Then get specific: If you’re focusing your efforts on pitbull rescues, look at other organizations that focus on pitbull rescues. What are those organizations named? 

Make sure you think beyond your local area. Which national organizations have earned people’s trust and successfully carried out their missions over several years or even decades? What do you think they’re doing right? How do their names communicate their goals? For this cause, that would mean looking up organizations like the American Society for the Prevention of Cruelty to Animals, The Humane Society, and Best Friends Animal Sanctuary. 

Once you’ve done that, think about animal welfare at the broadest level. Why is it important to you? What words and phrases come to you when you think of the cause? For example, some people think of animals as their best friends. That might have inspired the founders of Best Friends Animal Sanctuary. Think about what inspires you and keep a list of those words or phrases that come to mind. 

Now think about the people involved in your cause. Are you creating this organization to honor a child’s pet or a local activist who has supported animal welfare over the course of their lifetime? Are you working to support animals in one city or region? You may want to include that information in your name. 

Finally, we believe that the best names clearly communicate what you do and/or why you do it. One easy way to help your future supporters find your organization is to tell them who you are right off the bat. For example, the American Society for the Prevention of Cruelty to Animals has a name that notes the population it serves (America), what the cause is (animals), and what they’re specifically working to do (prevent cruelty).

Don’t worry about not having a “fun” or “cute” name. You can still incorporate that kind of energy and language into your marketing campaigns and in how you talk about your work.

So, based on the above, what would you name your organization? Your list may look something like this:

One final recommendation: While your organization’s name is important, you don’t want to waste valuable time agonizing over the perfect one. That’s another reason why it’s great to have an expert or team of experts helping you in the nonprofit development and creation process. 

Learn more about the services Pearl Solutions offers.

Write the Articles of Incorporation.

In order to achieve 501(c)(3) status, the IRS requires that you submit things like your articles of incorporation (sometimes known as an organizing document). According to the IRS, an organizing document is defined as the “trust instrument, corporate charter, articles of incorporation, articles of association, or other written instrument by which the organization is created under state law.” 

A charity’s organizing document must meet these requirements. A private foundation’s organizing document must meet these requirements. We’ll get into the distinction between a charity and private foundation below. For now, here is additional information for private foundations here and public charities.

Create Bylaws for the Organization.

You’ll also need to create bylaws. These are the internal rules everyone in your organization must follow. While the federal government doesn’t require specific language in your bylaws, your state might

Apply for an Employer Identification Number (EIN).

All businesses have to apply for an EIN. This is so the IRS can easily identify them. 

You’ll need to apply for an EIN even if your organization won’t have employees. To apply for your EIN, you need to file Form SS-4.

Appoint Board Members and Officers.

Another important decision to make during this process is who is going to help you run the organization. This means choosing your board members and officers. 

Your board members and officers should fall under at least one of these areas: 

It goes without saying, but we’ll say it anyway: You should only appoint people to the board if you’re confident that they will fulfill all of their duties. When asking people to join, make sure they’re aware of what role they’ll play and what is expected of them. 

Finally, make sure you check to see if there are any state or federal requirements. Do you need a certain number of board members? Can they be related? Are there any residency requirements? What are the terms? What is quorum? These are all things that you’ll need to consider.

Submit IRS Form 1023 or 1023-EZ for Tax-Exemption Determination.

There are lots of numbers to remember when it comes to operating a nonprofit. When you’re looking to apply for tax-exempt status, the one you need to remember is 1023. 

Form 1023 is the form you submit to apply for that status. Form 1023-EZ is a streamlined version of that form. 

Obtain Necessary Licenses and Permits.

The licenses and permits you need to obtain will be based on your organization’s activities. You may be required to obtain licenses and permits on the federal and state level. This resource from the U.S. Small Business Administration is a good place to start when learning which ones apply to your organization. 

Complete State Registration Requirements.

As mentioned above, you also need to find out what your state requires you to do in order to operate in compliance with their laws.  

Financial Management Considerations for Nonprofits

Here are a few considerations for managing your nonprofit’s financials. 

Maintain Separate Bank Accounts for Business Operations. 

Make it easy on yourself, your accountant, and potential auditors and keep separate records you can easily review. One way to do this is to set up a bank account specifically for the nonprofit. 

Donations/Contributions

In most cases, if you achieve and maintain 501(c)(3) status, donations to your organization will be tax-deductible. Keep in mind that this means you will likely be obligated to disclose donor names and donation amounts.

Prepare Annual Operating Budgets.

Speaking of donations, how much revenue do you expect to bring in each year? In order to adequately fund your initiatives and pay your team, you need to prepare a realistic annual operating budget. This will enable you to keep track of your spending and adjust your marketing efforts or operations accordingly. This will also be good to have on hand in case the IRS wants to review your budget. 

Create Policies Regarding Expenditures.

As you know, you can’t just focus on revenue. You also need to think of your expenditures or expenses. When creating your policies, think about:

Ask an accountant or lawyer what they recommend and look up policies that other organizations have put in place.

Private Foundation or Public Charity?

Did you know that not all 501(c)(3) organizations are classified as public charities? Some are considered private foundations.

Should You Start a Private Foundation?

Your organization will be classified based on the level of public involvement in its activities. Here’s how the IRS defines a private foundation: 

“A private foundation…is typically controlled by members of a family or by a small group of individuals, and derives much of its support from a small number of sources and from investment income. Because they are less open to public scrutiny, private foundations are subject to various operating restrictions and to excise taxes for failure to comply with those restrictions.”

Wondering if your organization is a private foundation? 

“Under the tax law, a section 501(c)(3) organization is presumed to be a private foundation unless it requests, and qualifies for, a ruling or determination as a public charity.” 

Learn more about the lifecycle of a private foundation and exemption

Should You Start a 501(c)(3) Public Charity?

Which organizations are considered to be 501(c)(3) public charities? 

“Organizations that qualify for public charity status include churches, schools, hospitals, medical research organizations, publicly-supported organizations (i.e., organizations that receive a specified portion of their total support from public sources), and certain supporting organizations.”

If your organization is more aligned with those examples, you may want to request a ruling determination to be recognized as a public charity. 

Learn more about the lifecycle of a 501(c)(3) public charity

Conclusion

In conclusion, while you can start a 501(c)(3) organization by yourself, we believe there are too many benefits of hiring an outside expert to tackle these tasks alone. 

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions. 

6 Benefits (and 4 Risks) When Starting a 501c3 Organization

Disclaimer: Although we do not provide financial or legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). Visit our service pages to find out more about what Pearl Solutions can offer. 

6 Benefits (and 4 Risks) When Starting a 501(c)(3) Organization

If you have a vision of how you can improve your community and have a positive impact on the world, you may be considering starting a 501c3 or 501(c)(3) nonprofit organization to facilitate that work. 

As you’ll see below, there are many benefits to having 501(c)(3) status. We’ve also included a few things to keep in mind so you don’t put that status at risk. 

Definition of 501(c)(3) Status

What does it mean to have 501(c)(3) status or be a 501(c)(3) organization? When an organization has achieved this status or designation, it means that the Internal Revenue Service (IRS) has determined that the organization is tax-exempt*. 

In order to qualify for 501(c)(3) status, you must send in an application to the IRS and prove that your organization meets the exempt purposes defined in section 501(c)(3) of the IRC. According to the IRS, a 501(c)(3) organization:

“…must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”

You can learn more on the IRS website

What is the Difference Between Nonprofit and Tax-Exempt?

Is there a difference between nonprofit status and tax-exempt status? Yes, there is. If this is news to you, you’re not alone. It’s a frequently asked question

This is how the IRS explains the difference:

“Nonprofit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions. Although most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax.”

In short, state law governs an organization’s nonprofit status. The federal government determines whether or not that organization has 501(c)(3) status and is exempt from paying federal income tax. 

Benefits of Starting a 501(c)(3) Organization

1. Tax Exemptions 

The most obvious benefit of being a 501(c)(3) organization concerns tax exemption. 

Federal Income Tax Exemption

Organizations that have 501(c)(3) status are exempt from paying federal income tax under section 501(c) of the IRC. 

Property Tax and Sales Tax Exemptions

Your organization’s exemption from paying certain taxes—like property tax or sales tax—will depend on your local and state laws. As mentioned above, tax-exempt status and nonprofit status are not interchangeable. Don’t assume your nonprofit is automatically exempt from paying local and state taxes just because it’s exempt from paying certain taxes on the federal level.

Ultimately, it’s your responsibility to ensure your organization is in compliance with local, state, and federal laws around tax exemption. When in doubt, we recommend seeking advice from an accountant who is familiar with tax law and how nonprofits operate in your area. 

2. Public Charitable Deduction for Donations

Another benefit of maintaining 501(c)(3) status is that donations or charitable contributions to your organization are likely tax-deductible. This means that donors can itemize their deductions and adjust their gross income by a certain percentage based on the amount that they contributed to different 501(c)(3) organizations over the course of the filing year. This incentive may motivate people to donate to your organization. 

3. Limited Liability Protection

A Limited Liability Company (LLC) is a legal status or business structure that offers the owner and/or members limited liability. 

Protection From Personal Liability for Directors and Officers

When nonprofits are organized in this way, owners, board members, and other members usually have limited personal liability. As noted by the Nonprofit Risk Management Center, some bylaws include a promise to indemnify directors and officers for certain actions conducted while acting in those roles. Some states are actually required to do so.

As with tax exemption, it’s important that you don’t assume a certain level of financial or personal liability. Look into your local, state, and federal laws and make sure you understand what your protections and risks are. 

Limiting Risk for Business Owners and Others Involved in the Corporation

When someone has limited financial liability, their liability is limited to a fixed amount; the fixed amount is usually the value of their investment in the organization. Organizing as an LLC limits the financial risk for business owners and others involved in the corporation. 

4. Perpetual Existence 

As with limited liability, perpetual existence concerns the separation between a person and an entity. Nonprofits continue to “live” or “exist” even if a director or certain designated members die or leave the organization.

5. Financial Benefits of 501(c)(3)

Another financial benefit that 501(c)(3) organizations enjoy is their access to certain grants or funds. 

Private Grants Available to 501(c)(3) Organizations

In order to apply for private grants, organizations have to meet certain eligibility requirements. Often, funders only open grants up to organizations with 501(c)(3) status. When you achieve this status, you’ll be eligible to apply for grants that are only available to 501(c)(3) organizations. This means you now have access to a wide source of funding that would otherwise not be available to your organization. 

Looking to apply for a grant but aren’t sure where to start? Learn about the grant proposal writing services and grant management services we provide. 

Tax-Deductible Contributions From Individuals

Donations made to most 501(c)(3) nonprofits are considered tax-deductible. This may motivate potential donors to make a contribution to your organization. 

6. Nonprofit Status Recognition

People want to donate to organizations they can trust. An easy way to quickly determine an organization’s trustworthiness is to see if it has 501(c)(3) status.

Risks Involved When Starting a 501(c)(3) Organization

There are many benefits of 501(c)(3) status. Unsurprisingly, there are also risks to maintaining that status. These mostly involve compliance issues or what your organization cannot do if you want to receive and/or maintain your 501(c)(3) tax-exempt status. 

To minimize the risk of losing your status, follow the rules affecting these four areas. 

1. Private Benefit Accusations

Regarding private benefit and inurement accusations, the IRS states that: 

Certain people involved with the organization could be subject to sanctions like penalty excise taxes if they break these rules. 

2. Corporate Lobbying

According to the IRS, while an organization with 501(c)(3) status can lobby in some cases, “too much (lobbying) can hurt its tax-exempt status. Its lobbying activities cannot be more than an insubstantial part of its overall activities.” 

3. Getting Politicized

These organizations are also restricted from participating in certain political activities. They are “absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.”

4. Unrelated Business Income (UBI)

501(c)(3) organizations aren’t exempt from every type of tax. The IRS defines unrelated business as an activity that is subject to UBI tax if it meets these requirements:

Information on exceptions and exclusions can be found here

Conclusion

There are many reasons why you may want to apply for 501(c)(3) status. If you need support, our team can streamline the lengthy and complicated process of starting and developing a nonprofit or mission-driven corporation. Our services include corporate registration, IRS 501(c)(3) tax-exempt recognition application, formulation of bylaws, and more. 

*Pearl Solutions doesn’t provide legal or financial advice. Please direct any financial or legal inquiries to your accountant or lawyer.

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions. 

501c6 vs 501c3: What’s the Difference?

Disclaimer: Although we don’t provide financial advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code* (IRC). Visit our service pages to find out more about what Pearl Solutions can offer. 

Definition of 501(c)(6) vs 501(c)(3)

If you’re in the nonprofit development and creation process or you’re starting your own mission-driven organization, you’ve got a lot on your plate. You might be tempted to hold off on reading a blog post about 501(c)(6) vs 501(c)(3) organizations. 

We understand that instinct. However, we believe that now is the best time to learn about the two types of organizations. 

Why? Well, ask yourself these questions: Do you want your organization to receive tax-exempt status? Do you want donations to your organization to be tax-deductible? The answer is likely yes to both. 

In order for those two things to be possible, your organization will need to apply for and receive tax-exempt status from the Internal Revenue Service (IRS). The IRS makes this decision by adhering to section 501 of the Internal Revenue Code (IRC). This is where the 501(c)(6) and 501(c)(3) designations** come into play. 

The subsections in section 501 describe the types of organizations that qualify for tax-exempt status. This includes, for example, subsection 501(c)(3), which is the section under which most nonprofits achieve their tax-exempt status. However, that’s not the case for all nonprofits or mission-driven organizations. Some organizations may receive tax-exempt status under another subsection. 

That’s why it’s important to know the difference between subsection 501(c)(3) and the other subsections: You need to determine under which subsection your organization might receive tax-exempt status.

In this blog post, we’ll discuss the differences between 501(c)(6) and 501(c)(3) organizations. We’ll also talk about exemption purposes—what your organization’s purpose is—and how your organization’s purpose informs your application for tax-exempt status. Finally, we’ll list examples of 501(c)(6) and 501(c)(3) organizations so you can see what types of organizations qualify for exemption under those subsections. 

Differences Between 501(c)(6) and 501(c)(3) Organizations

We’ve provided an overview of 501(c)(6) and 501(c)(3) organizations below. As you’ll see, there are several important factors that distinguish 501(c)(6) organizations from 501(c)(3) organizations. If you want to see a more comprehensive breakdown, take a look at this blog post from Donorbox. 

501(c)(6) Organizations

Overview

This is what the IRS says about organizations exempt under section 501(c)(6):

“Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”

Purpose

In order to determine which subsection your organization falls under, you need to look at its purpose. More importantly, you need to understand how the IRS categorizes your organization. 

For example, the IRS defines a business league as “an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit.” The term business is “broadly construed,” which means the IRS includes professions like mercantile and trading businesses. You can find examples of common business interests here.

Additionally, a business league’s activities “must be devoted to improving business conditions of one or more lines of business as distinguished from performing particular services for individual persons.” 

Political Activity and Lobbying

Some subsections restrict organizations from political activity and lobbying. 501(c)(6) organizations have more freedom in this regard: 

An organization that otherwise qualifies for exemption under Internal Revenue Code section 501(c)(5) or 501(c)(6) will not be disqualified merely because it engages in some political activity. In addition, these organizations may engage in lobbying that is germane to accomplishing their exempt purposes without placing their exemption in jeopardy. An organization (other than a labor organization) that engages in these activities may need to give members notice of dues used for such activities, or be subject to a proxy tax on the amount of the expenditures.

Tax-Exempt Status

Organizations that meet the requirements laid out in this section are considered 501(c)(6) tax-exempt organizations.

While section 501(c)(6) organizations have their tax-exempt status, donations to those organizations are not tax-deductible

“Contributions to section 501(c)(6) organizations are not deductible as charitable contributions on the donor’s federal income tax return. They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer’s business. The donee organization may be required to make certain disclosures and pay a proxy tax in connection with the dues payment, however.”

Membership Fees and Dues

To achieve tax-exempt status under section 501(c)(6), organizations must receive “meaningful” membership support

In regards to membership composition, the IRS states:

“A business league exempt under Code section 501(c)(6) organization is a membership organization characteristically supported by dues. Although an organization may receive a substantial portion or even the primary part of its income from non-member sources, membership support, either in the form of dues paid to or involvement in the organization’s activities, must be meaningful.”

Dues are not usually considered when measuring meaningful membership support.

Examples

As noted above, these organizations are usually business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues. Examples of 501(c)(6) organizations include the U.S. Chamber of Commerce and the Academy of Television Arts & Sciences.

501(c)(3) Organizations

Overview

According to the IRS, in order to be tax-exempt under section 501(c)(3) of the IRC: 

“…an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”

Purpose

The exempt purposes of organizations that receive tax-exempt status under this section include: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. 

Political Activity and Lobbying

Here’s what the IRS says about the restrictions placed upon 501(c)(3) organizations when it comes to political activity and lobbying:

“Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity.” 

Organizations that violate these restrictions may be denied tax-exempt status or have their tax-exempt status revoked.

Tax-Exempt Status

Organizations that meet the requirements described in section 501(c)(3) are considered tax-exempt organizations. A key difference between 501(c)(6) organizations and 501(c)(3) organizations is that most donations to 501(c)(3) organizations are tax-deductible. This also means that 501(c)(3) organizations have to disclose more information about donors and donations than 501(c)(6) organizations.

Membership Fees and Dues

Although organizations covered under section 501(c)(3) are not membership organizations, they may have members and charge membership fees. However, the organizations must receive “no more than one-third of its support from gross investment income and more than one-third of its support from contributions, membership fees, and gross receipts from activities related to its exempt functions.” 

Per the IRS, examples could include a parent-teacher organization or an arts group with box office revenue.

Examples

As mentioned above, most organizations that we consider to be nonprofits or charities achieve their tax-exempt status under section 501(c)(3). Examples of 501(c)(3) organizations include Doctors Without Borders (Médecins Sans Frontières), Feeding America, Boys & Girls Clubs of America, American Heart Association, and World Wildlife Fund Inc. 

If you’re looking for a quick way to determine if a nonprofit is a 501(c)(3) organization and your donation is tax-deductible, scroll to the bottom of their website. They often include that information in the footer. 

For example, this is what you’ll see at the bottom of the World Wildlife Fund Inc.’s website: 

World Wildlife Fund Inc. is a nonprofit, tax-exempt charitable organization (tax ID number 52-1693387) under Section 501(c)(3) of the Internal Revenue Code. Donations are tax-deductible as allowed by law.

This is what you’ll see at the bottom of the Boys & Girls Clubs of America’s website: 

BGCA is a 501(c)(3) (nonprofit) organization and donations are tax deductible.

This is what you’ll see at the bottom of the American Heart Association’s website: 

The American Heart Association is a qualified 501(c)(3) tax-exempt organization.

This is what you’ll see at the bottom of Feeding America’s website: 

Feeding America is a 501(c)(3) non-profit recognized by the IRS.

The Doctors Without Borders website includes the nonprofit’s Federal tax ID number in the footer. On the Ways to Give page, they confirm that the organization has 501(c)(3) status: 

Doctors Without Borders USA, Inc. is recognized as an international nonprofit organization/NGO under the Internal Revenue Code section 501(c)(3).

If you want to make sure your donation is tax-deductible but can’t find the information in the footer of the website or in the organization’s FAQ section, we recommend getting in touch with someone who works at the organization and asking them.

If you’re looking to start a mission-driven organization, we’d love to hear from you. Our team can assist you with your filings and corporate documents, including helping you apply for 501(c)(3) status under the IRC. You can learn more about the nonprofit creation and development services we provide at Pearl Solutions here.

*The IRC is overseen by the Internal Revenue Service, which is a bureau of the Department of the Treasury that operates as a tax administrator.

**You may also see these designations without the parentheses: 501c6 and 501c3.

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions. 

How to Get a Government Grant

How to Get a Government Grant

Pearl Solutions provides grant proposal writing services and grant management and administrative services. Visit our service pages to find out more about what Pearl Solutions can offer. 

One of the most important parts of operating a nonprofit organization is securing the funds needed to carry out its mission. In addition to traditional forms of fundraising like soliciting individual donations, many nonprofit organizations operate on funds secured from grants. 

In this post, you’ll learn more about what a government grant is, why you should apply for one, a few different types of grants, the grant application process, and how to use grant funds. 

What is a Government Grant?

You want to complete a project or pursue an initiative that will help you make a bigger impact. To do that, you need funding. When you apply to receive a grant, you’re applying to receive grant funds—which is what you’ll use to fund your dream project or initiative. 

Although the concept is similar, grants are not the same as loans. If you applied for a loan, you’d be required to pay that money back to the lender. That isn’t the case with grants. When you secure a grant, you’re not expected to pay the grant money back to the funder. That’s what makes a grant such a valuable source of fundraising revenue.   

So, what is a government grant? A government grant is exactly what it sounds like: a grant that is awarded by the federal, state, or local government. 

According to Grants.gov

“A grant is a way the government funds your ideas and projects to provide public services and stimulate the economy. Grants support critical recovery initiatives, innovative research, and many other programs listed in the Catalog of Federal Domestic Assistance (CFDA).”

Here is a list of federal agencies that award grants. If you want to dive deeper into federal grant policy, you can do so here.

Benefits of Applying for a Government Grant

As mentioned above, one of the biggest benefits of receiving a government grant is that you won’t be expected to pay that money back. 

Additionally, when you apply for and win a grant, you’ll have a stable source of funds dedicated to a project. That will enable you to complete a project that you may not have been able to pursue without those funds. This also makes it easier to plan for the future and better allocate other resources. 

Although grants are competitive, there are millions of dollars of grant funding available. When you apply for a government grant, you’re opening your organization up to a huge potential source of funding. If you normally rely on fundraising revenue that you receive from one-time donations or contributions from a donor-advised fund, grants will also diversify your fundraising sources.

Another benefit to applying for and winning a government grant is that this can boost your organization’s credibility. When donors see that the government or a governing body has granted an award to an organization, the donor will trust that your organization has well-rounded funding sources. 

Other Foundations may be inclined to award a grant to your organization if they see that your organization has received government grants in the past.

Types of Grants

Here’s a brief look at business grants, personal grants, education grants, and nonprofit organization grants.

Business Grants

The U.S. Small Business Administration (SBA) provides grants to businesses to promote entrepreneurship. Keep in mind that the SBA doesn’t provide grants for starting or expanding a business. 

The SBA does, however, provide grants for community organizations and grants to nonprofit organizations that support entrepreneurship through counseling and training programs. 

Personal Grants

Government grants are usually reserved for organizations that work with programs and projects that are funded by the government. According to USA.gov, those organizations can include state and local governments, universities, research labs, law enforcement, nonprofit organizations, and other businesses.

The government occasionally awards personal grants. As with other grants, recipients aren’t expected to repay the funds.  

Education Grants

An education grant is a type of financial aid that doesn’t need to be repaid. Examples of these grants include Pell Grants and Teacher Education Assistance for College and Higher Education (TEACH) Grants.

You can find information on the different types of education grants—discretionary grants, grants to help students attend college, formula grants—on the U.S. Department of Education’s website

Nonprofit Organization Grants

Nonprofit organization grants are grants that are awarded to nonprofit organizations. There are many different types of classifications of nonprofit organizations so be sure to check the eligibility requirements when researching government grants. 

For example, check to see if a grant is only available to nonprofit organizations with 501(c)(3) status. If your organization doesn’t have 501(c)(3) status, you shouldn’t pursue that grant.   

Pro Tip: Although we do not provide legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code. You can find more information about the services we provide here

Determining Eligibility for a Government Grant

Now that you know that you want to pursue government grant funding, it’s time to look at how to get a government grant. 

The very first thing you need to do is determine your organization’s eligibility. Why? The grant application process is complex, and it usually requires support from more than one person. If you apply for government grants that your organization isn’t eligible to receive, your organization will be immediately removed from consideration for those funds. That means you’ll have wasted all of the energy and resources you put into the application process. 

Researching Federal Agencies and Programs That Offer Financial Assistance

In order to determine which grants your organization is eligible to receive, you have to do some research. You can use an official United States government website—Grants.gov—that exists to “enable federal grant-making agencies to create funding opportunities and applicants to find and apply for these federal grants.” You can also find information through SAM.gov’s Assistance Listings.

Unfortunately, there are people who will want to take advantage of the fact that you’re searching for funds. As you research, keep an eye out for common government grant scams

Pro Tip: If the thought of researching and applying for grants is intimidating, we can help. Through our grant writing and research services, we search for grant opportunities to match your institution, register your organization in key governmental databases, and write and submit your grant applications. 

Requirements for Eligibility, Such as Age, Location, and Income Level

Each grant will have eligibility requirements, but the eligibility requirements for each grant will vary. It’s extremely important that you carefully review all of the requirements and make sure your organization meets every single one before you decide to apply for a grant. 

It’s understandable that you may be tempted to apply for as many grants as possible to increase your odds of success, but the reality is that you’re setting yourself up for an automatic disqualification if you apply to a grant your organization isn’t eligible to receive. 

To save time and increase your odds of success, narrow your search so that you only see grants that your organization is eligible to receive. You can filter by things like age, location, income level, annual fundraising revenue, staff size, service area, or tax-exemption status

The Application Process

The next step in the grant lifecycle is applying for the grant. This involves writing a compelling grant proposal and submitting a complete grant application. 

Preparing a Successful Grant Proposal

A grant proposal—also referred to as a grant application—refers to the document or collection of documents that explain why your organization should receive the government grant.

In order to prepare and submit a successful grant proposal, you need to: 

Pro Tip:  Be sure you understand the deadline and set up your project backing up from that date.   

Because each grant is unique, you will need to tailor your application to the specific grant you want to receive.  

Receiving Approval or Denial of the Application

After the application period closes, the funder will evaluate the applications and let applicants know if their proposals have been approved or denied. 

Evaluating Results of the Application and Required Follow-Up Steps

The funder will select the organization(s) that will receive the grant funds and reach out with information on what comes next. This includes signing the required documents and providing information the funder needs to release the grant money. 

Managing Awarded Funds

Once your organization receives the funds, it’s time to implement, monitor, and report on the project. During this time, you’ll need to provide the funder with updates on how you’re using the funds and how the project is progressing.  

In some cases, you can work with the funder to renew the grant after you complete the project. If necessary, you may also be able to work with the funder to modify the grant limitations or restrictions if something comes up and you need to change the scope of the project. 

If you’re looking for support as you seek government grants, you might be interested in our grant management services. Learn more about other services that Pearl Solutions provides here

How Long Does it Take to Get 501c3 Status?

How Long Does it Take to Get 501(c)(3) Status?

Disclaimer: Although we do not provide legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). Visit our service pages to find out more about what Pearl Solutions can offer.  

What is 501(c)(3) status?

How long does it take to get 501(c)(3) status? If you have started the nonprofit development process, you know that there are a lot of things to take care of when creating your organization. To qualify for tax-exempt status, organizations need to apply for 501(c)(3) status with the IRS. 

As noted in this post; the difference between 501(c)(3) and 501(c)(4) organizations is 501(c)(3) refers to section 501(c)(3) of the Internal Revenue Code (IRC). The 501(c)(3) and 501(c)(4) designations are used to categorize organizations and explain their tax-exempt status. 

According to the IRS, to be tax-exempt under section 501(c)(3) of the IRC, an organization must: 

“…be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”

You can read about how the IRS defines publicly-supported charitable organizations, what you need to do when applying for 501(c)(3) status, and more on the IRS website.

Benefits of 501(c)(3) Status

As a 501(c)(3) organization, your organization will be exempt from paying federal income tax. Donations to organizations with tax-exempt status under section 501(c)(3) are also tax deductible. This information could serve as an incentive for people to give to your organization for the first time or encourage existing donors to give more than they have in the past.

People may also feel more comfortable making a donation once you have secured this status because having approval from the IRS lends credibility and legitimacy to your organization. 

Another important benefit is that some grants are only available to organizations with 501(c)(3) status. If that is the case and you have this status, you automatically meet one of the eligibility requirements. 

Understanding the Application Process for 501(c)(3) Status

There are certain steps you need to take before applying for 501(c)(3) status. Once you take care of those, you can move forward with the application process.

Types of Organizations Eligible for Tax Exemption

Eligible organizations are those that are formed for certain exempt purposes. Those exempt purposes refer to the work your organization does and the way it operates. 

Your organization likely qualifies for this status under section 501(c)(3) if it was formed to address one of these exempt purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. 

Organizations with 501(c)(3) status include Black Girls Code, charity: water, and Habitat for Humanity International. 

Completing the Application Form and Paying the Filing Fee

To apply for 501(c)(3) tax-exempt status, you must fill out Form 1023 or Form 1023-EZ. Form 1023-EZ is a streamlined version of Form 1023. 

To see if your organization is eligible to file Form 1023, take a look at this PDF. You can find instructions for filling out Form 1023-EZ here. 

In addition to filling out the correct form, you must pay the required filing fees. 

Financial Projections

Part VI-A of Form 1023 requires that you provide certain financial information, including actual or projected financial information for three to five years. You can learn more about the financial information you’ll disclose in Form 1023 and why you need to disclose it in this FAQ

Processing Time for Approval

So, how long does it take to get 501(c)(3) status? Unfortunately, there is no way to say for sure exactly how long it takes to process an application. The IRS usually processes the applications in the order in which they are received.  

The IRS provides some guidance on how to shorten the application process here. Their top 10 tips are: 

  1. Pay the correct user fee.
  2. Attach a complete copy of the organizing document and all amendments.
  3. Provide enough information about the organization’s activities to show how it will achieve the exempt purpose.
  4. Complete all required pages.
  5. Attach all required schedules.
  6. Include the month the organization’s annual accounting period ends.
  7. Include all of the necessary financial data. 
  8. Submit a copy of adopted by-laws.
  9. Ensure a director, trustee, principal officer, or other authorized individual signs the Form 1023, Form 1024, or Form 1024-A.
  10.  Provide the required information on the principal officers and board of directors.

Once you file your application, the IRS will send you an acknowledgment notice letting you know that they have received it. If they need more information to process your application, someone will reach out to you. 

According to Pay.gov, which is where you will file your form and pay the filing fee, you can check the status of your application by doing the following: 

“…go to Where’s My Application on IRS.gov. If you submitted your application before the date indicated in the chart on that page and haven’t been contacted, you can call the toll-free Customer Account Services number at 877-829-5500 Monday through Friday, 8 a.m. – 5p.m. (local time), to check on the status.”

Quick Approval Options Available

The application time for organizations applying for tax-exempt status with Form 1023-EZ is usually shorter than those applying with Form 1023. 

There are some cases where the IRS will expedite an organization’s application. You can find examples of when the IRS would expedite an organization’s application here.  

Determination Letter

When you apply for tax-exempt status, you will receive an acknowledgment notice that your application is under review. Once your application has been reviewed, you will receive a determination letter.  

If the IRS approves your application, you will receive a favorable determination letter. This letter serves as proof that you have received tax-exempt status under section 501(c)(3).  

If the IRS does not approve your application, you will receive an adverse determination letter. This is what the IRS says about adverse determination letters or adverse rulings: 

“A proposed adverse ruling or determination letter will be issued to an organization that has not provided sufficiently detailed information to establish that it qualifies for exemption or if the information provided establishes that it does not qualify for exemption. An organization can appeal a proposed adverse ruling or determination letter.”

Maintaining 501(c)(3) Status Once Approved

Board of Directors and Charitable Organizations

Your organization does not automatically retain its tax-exempt status. Each year, you will be required to file certain forms with the IRS. The information you provide will inform whether or not your organization maintains its status. 

On those forms, you will be asked to provide information on things like your organization’s governing body. According to this Compliance Guide for 501(c)(3) charities, the IRS believes that: 

“An active and engaged board is important to the success of a public charity and compliance with the tax law. A governing board should be composed of persons who are informed and active in overseeing a charity’s operations and finances. To guard against insider transactions that could result in misuse of charitable assets, the governing board should include independent members and should not be dominated by employees or others who are not independent because of business or family relationships.” 

The IRS also encourages board members to “regularly review the organization’s financial statements and information returns, and consider whether an independent auditor is appropriate.”

Learn more about governance and related topics.

Federal Income Tax Requirements and Unrelated Business Income Rules

If you see “UBI” on your tax forms, it likely refers to “Unrelated Business Income.” UBI is defined as “income that an exempt organization receives from conducting activities that are not related to its exempt purpose. Even if an organization uses the income from an unrelated activity to help pay for its exempt activities, that income is still UBI.” How your organization handles UBI can jeopardize your 501(c)(3) tax-exempt status.

As far as federal tax income requirements go, 501(c)(3) organizations that are exempt from paying federal income tax and pay employees are responsible for “withholding, depositing, paying, and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements, or if the taxes clearly don’t apply.” 

Learn more about employment issues as they relate to exemption status here.

Re-filing Procedures for Tax Returns

Each year, the IRS expects you to file certain forms. If you submit a return that is not accurate or incomplete, you will have to file it again. 

Keep in mind that you may receive a penalty for not filing a form correcting within a certain period of time after being notified that your return is incomplete. You may also incur fees if you file your return late.

For more information on maintaining your tax-exempt status, visit the stayexempt.irs.gov website.

Conclusion

You will be required to fill out several forms* and submit documentation to receive and maintain your tax-exempt status. Our team can assist you with your filings and corporate documents and help you apply for 501(c)(3) status. You can learn more about the nonprofit creation and development services we provide at Pearl Solutions here.

*You can find a comprehensive list of the forms and instructions that exempt organizations may need on the IRS website.

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions.