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The name of your nonprofit corporation cannot be the same as the name of another corporation
on file with your state's corporations office (usually the Secretary of State's office). It must end
with a corporate designator, such as "Corporation," "Incorporated," or "Limited," or an
abbreviation of any of those words.

Your state's corporations office can tell you how to find out whether your proposed name is
available for your use. For a small fee, you can usually reserve the name for a short period of
time until you file your articles of incorporation. For more information, contact your state's
corporations office.

 

 
   

You must file "articles of incorporation" with the state's corporate filing office. In this document,
you fill out some basic information such as your nonprofit's name and office address. Although
preparing this document isn't difficult, you do need to include specific language to ensure that
you'll receive tax-exempt status. Your state's nonprofit formation packet, if available, may
include the required information.

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If your state does not offer a nonprofit formation packet, or if you need help understanding the
requirements, consult u
  
  
 , by Anthony Mancuso (Nolo), to
make sure your articles comply with your state's nonprofit law.

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Submit a federal 501(c)(3) tax exemption application to the IRS (along with a copy of your filed
articles with your application). To apply, you must complete IRS Form 8718, è


 


  

  



, and IRS Package 1023, 

  

    

 . If you need a bit of help deciphering the IRS-speak, download Nolo's
plain-English eGuide, 
  
 

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This step does not apply to nonprofits in all states. In California, Montana, North Carolina, and
Pennsylvania, you must complete a separate application to get a state tax exemption. In other
states, as long as you file nonprofit articles of incorporation and obtain your federal 501(c)(3)
tax-exempt status, your state tax exemption will be automatically granted. In still others, to get
your state exemption you must send in a copy of the IRS determination letter that granted your
federal exemption. Contact your state tax agency to find out what steps you must take.

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A nonprofit's bylaws are the internal governing rules that contain rules and procedures for
holding meetings, voting on issues, and electing directors and officers. Typically, the bylaws are
adopted by the corporation's directors at their first board meeting. For help creating bylaws,
see u
  
  
 , by Anthony Mancuso (Nolo).

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A nonprofit's directors make the major policy and financial decisions for the nonprofit. Many
states allow nonprofits to have just one director, but other states require at least three.

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At the first meeting of the board of directors, the directors take care of formalities such as
adopting the bylaws, electing officers, and recording the receipt of federal and state tax
exemptions. After the meeting is completed, minutes of the meeting should be created and filed
in the nonprofit's records binder. For more information, see Nolo's article Protecting Your
Nonprofit Corporation's Tax-Exempt Status.

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Check with your state department of consumer affairs (or similar state licensing agency) for
information concerning state licensing requirements for your type of organization. For
instance, if you sell anything to consumers, you'll need a sales tax permit, and your
activities may require a zoning permit.


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Nonprofit (or not-for-profit) corporations work well for all sorts of groups, from those promoting
arts and music to those active in education, health, conservation, and community services. Often
the reason for obtaining nonprofit status is simple -- it's usually a requirement for obtaining funds
from government agencies and private foundations. Other important benefits include tax-exempt
status and personal liability protection.

Here's an overview of what types of groups should consider incorporating, and what lies ahead
for them.

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Many nonprofit groups seek nonprofit corporate status to gain exemptions from federal and state
income taxes. The most common federal tax exemption for nonprofits comes from Section
501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called
"501(c)(3)s."

If your group obtains tax-exempt status, not only is it free from paying taxes on all income from
activities related to its nonprofit purpose (see Nolo's article Tax Concerns When Your Nonprofit
Corporation Earns Money), but people and organizations that donate to the nonprofit can take a
tax deduction for their contributions. (To learn about applying for tax exemptions, read How to
Form a 501(c)(3) Nonprofit Corporation.)

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Forming a nonprofit corporation normally protects the directors, officers, and members of the
nonprofit from personal liability for the corporation's debts and other obligations. Called limited
liability, this shield ensures that anyone who obtains a judgment against the nonprofit can reach
only the assets of the corporation, not the bank accounts, houses, or other property owned by the
people who manage, work for, or participate in the business. For more information, see Nolo's
article, Should Nonprofit Leaders Worry About Personal Liability?

Believe it or not, there are still more reasons to incorporate your nonprofit group; read Five
Reasons to Incorporate Your Nonprofit Association .

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The types of groups that typically seek nonprofit status vary widely. Here's a partial list of
associations that may be eligible:

`? childcare centers
`? shelters for the homeless
`? community health care clinics and hospitals
`? museums
`? churches, synagogues, mosques, and other places of worship
`? schools
`? performing arts groups, and
`? conservation groups.

If your group isn't on this list, it doesn't mean you won't qualify for tax-exempt status. As long as
your group's activity is charitable, educational, literary, religious, or scientific, and you meet the
other requirements for tax-exempt status, you should be able to get a tax exemption.

  
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Forming a nonprofit corporation is very similar to forming a regular corporation: You must file
articles of incorporation with the corporations division (usually part of the secretary of state's
office) of your state government. But unlike regular corporations, you must also complete federal
and state applications for tax exemptions.
After filing this initial paperwork, you will create corporate bylaws, which lay out the operating
rules for your nonprofit. Finally, you elect the initial directors of your nonprofit and hold an
organizational meeting of the board. (To learn more about forming a nonprofit corporation, see
How to Form a 501(c)(3) Nonprofit Corporation.)

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For step-by-step guidance on forming a nonprofit in your state, see u
  
 

 , by Anthony Mancuso (Nolo). Forms are included to help you create your articles of
organization, bylaws, and minutes of the organizational meeting.

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Most nonprofit corporations are run by a board of directors -- called trustees in some states. The
directors' main role is to set policy for the nonprofit and oversee areas like finance, strategic
planning, and management-level hiring.

A nonprofit corporation also has officers, who are usually appointed by the board of directors.
Most nonprofit corporations have a president, secretary, and treasurer, and some have other
positions such as a vice-president or assistant secretary, depending on their needs and any state
law requirements.

Officers may serve on the board of directors or they may be non-board members who play an
active role in the day-to-day management of the nonprofit. For example, the person appointed
president could serve as the executive director of the nonprofit in a paid staff position and be in
charge of running the organization. Or the president could be the chair of the board (sometimes
called the ³president and chair of the board´) whose primary role would be to run board meetings
and oversee board matters. The same is true for the treasurer and secretary or any other officer
position. These positions can be filled by people in board advisory roles or by non-board
members who are paid staff and actively running the corporation. How this is handled in any
particular nonprofit is usually determined by the organization¶s articles of incorporation and
bylaws. And some states have rules about officer positions -- what officer positions are required,
whether one person can hold more than one role, and whether paid officers can serve on the
board.

Once an organization gets big enough, the board typically authorizes the hiring of a full slate of
salaried personnel, including program staff, administrative assistants, and development staff.

  
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Nonprofit corporations must observe most of the same formalities as regular corporations. These
include keeping good corporate records, holding and preparing minutes of directors' (and
possibly members') meetings, and maintaining a separate bank account.

Unlike regular corporations, a nonprofit corporation cannot distribute any profits to its members,
contribute money to political campaigns, or engage in lobbying activity, except in very limited
circumstances. (For more information about recordkeeping and further details about what
nonprofits can and cannot do, see Protecting Your Nonprofit Corporation's Tax-Exempt Status.)


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Nonprofits are not actually owned by anyone and therefore cannot be sold. If the directors of a
nonprofit corporation decide to dissolve it, they must pay off all debts and obligations of the
nonprofit and distribute all of its assets to another tax-exempt nonprofit corporation.

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Getting familiar with the key documents for your nonprofit corporation can be tedious, but it's
essential -- these documents contain important rules about how you must operate your nonprofit.
And, if you don¶t keep proper records, you could lose your corporate or tax-exempt status.
Here¶s a primer on the most essential documents of a nonprofit corporation: articles of
incorporation, bylaws, and organizational minutes.

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The primary corporate document for every nonprofit corporation is its articles of incorporation.
A corporation comes into existence on the date its articles of incorporation are filed with the state
corporate filing office.

Articles of incorporation contain basic structural information, such as the name of the nonprofit
corporation, its registered agent, registered office address, and the corporation¶s membership
structure, if any. Nonprofit corporations also often include essential tax exemption information in
their articles, such as their tax-exempt purpose, a clause dedicating their assets to another
501(c)(3) nonprofit organization or class of organizations should the nonprofit end, and other
operating restrictions necessary for the nonprofit to obtain tax-exempt status.

 
20 + 
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The bylaws of a nonprofit corporation are its second most important document. Bylaws basically
serve as a corporation¶s operating manual. Anytime someone wonders something like, "What's
the maximum time one of our board members can serve?" or "How many board members do we
need for a quorum?" they look to the bylaws for answers. Bylaws contain the rules and
procedures for holding meetings, electing directors, appointing officers, and taking care of other
essential corporate formalities.

State nonprofit laws also cover basic corporate governance matters, just like your bylaws. But
you can choose different rules, as long as you put the rules in your bylaws and they don't violate
state law. In any case, if a nonprofit¶s bylaws don¶t address an issue covered by state law, the
state rules usually kick in.

Often, nonprofits simply restate tax and governance rules in their bylaws. That way, they know
that if they follow their bylaws, they are complying with state law and doing their best to
maintain tax-exempt status. Restating state rules even if you don't vary from them is a good idea
because it's more efficient to have all the important operating rules easily accessible in one
document.

Whenever you have a choice, put material in your bylaws instead of your articles of
incorporation, as they¶re easier to change. The voting requirements to amend bylaws are
generally less stringent and you probably won¶t need to file anything with the state.

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The first order of business for most newly formed nonprofit corporations is to hold a meeting to
approve standard items of business necessary for starting operations. This is usually referred to
as the organizational meeting of the corporation. The meeting can be held by either the board of
directors or the incorporators -- whoever signed and filed the articles on behalf of the
corporation.

The minutes of this meeting are simply a formal record of the proceedings and actions taken.
Typically, these actions include such items as:

`? setting an accounting period and tax year

`? for a membership nonprofit, approving the issuance of memberships, membership
certificates, and, if applicable, setting and scheduling membership dues or assessments
`? authorizing and establishing the board and other committees
`? appointing officers
`? approving the bylaws
`? authorizing the nonprofit to apply for tax-exempt status or, if that's already been taken
care of, stating the effective date and terms of the organization's tax exemptions, and
`? approving other beginning transactions of the corporation, such as the opening of a
corporate bank account.

Some nonprofit corporations -- especially those created in a rush -- don¶t have minutes of the
first meeting of the board of directors or incorporators. It's not the end of the world; you can
proceed without them or recreate them. But if you recreate them after the fact, be sure to note in
your recreated minutes that they were created after the fact to memorialize actions taken by your
initial board or incorporators at their first meeting.

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If you have not done so already, you should set up a corporate records book to store all your key
documents. You can do this on your own with a three-ring binder or you can use a customized
corporate kit designed for this purpose. Your corporate records book should contain:

`? the articles of incorporation

`? the bylaws
`? minutes of your organizational meeting (or first directors¶ meeting)
`? a list of the names and addresses of your directors
`? for a membership organization, a membership roster listing the names and addresses of
your current members
`? minutes of all annual and special meetings of directors and members (if any), and
`? written consents to any actions taken by the board or members.

Keep your corporate records book at the principal office of your corporation so you always know
where to find it. When procedural or corporate governance questions come up, you¶ll be able to
check quickly, answer with confidence, and move on. Having your documents in order can also
help in the event your group is ever involved in an IRS or financial audit, or a dispute among
directors, members, creditors, contributors, or anyone else.


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Forming a nonprofit corporation is much like creating a regular corporation, except that
nonprofits have to take the extra steps of applying for tax-exempt status with the IRS and their
state tax division. Here is what you need to do:

1.? Choose an available business name that meets the requirements of state law.
2.? File formal paperwork, usually called articles of incorporation, and pay a small filing fee
(typically under $125).
3.? Apply for your federal and state tax exemptions.
4.? Create corporate bylaws, which set out the operating rules for your nonprofit corporation.
 5.? Appoint the initial directors. (In some states you must choose your initial directors before
you file your articles, because you must list their names in the document.)
6.? Hold the first meeting of the board of directors.
7.? Obtain licenses and permits that may be required for your corporation.


 



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Before you form your nonprofit corporation, you need to decide on a name that complies with
the rules of your state's corporate filing office. Check your state's filing office website for your
state's rules, but the following guidelines commonly apply:

`? The name of your nonprofit cannot be the same as the name of another corporation on file
with the corporations division.
`? The name must end with a corporate designator, such as Corporation, Incorporated,
Limited, or Corp., Inc., or Ltd. (This is required in only about half of the states.)
`? The name cannot contain certain words prohibited by the state, such as Bank,
Cooperative, Federal, National, United States, or Reserve.

In many states, you can check corporate name availability online by going to the state's filing
office website. Or you can call your state's corporations division and ask whether your proposed
name is available for your use. Often, for a small fee, you can reserve the name for a short period
of time until you file your articles of incorporation.

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Your state's corporate filing division, usually part of the secretary or department of state's office,
should have a website with nonprofit materials that will be immensely helpful to you in forming
your nonprofit. You will most likely find sample or fill-in-the blank articles of incorporation,
your state's nonprofit corporation laws, a filing fee schedule, and forms and instructions for
checking the availability of your proposed business name.

In addition to confirming that another corporation in your state isn't already using your proposed
name, you must make sure your name won't violate a trademark owned by another company (in
your state or out of state). To do this, you'll need to conduct a trademark search. For information
about trademark law and name conflicts, see the Your Business Name area of Nolo's website.

Once you've found a legal and available name, you aren't usually required to file or reserve the
name with your state -- when you file your articles of incorporation, your nonprofit's name will
be automatically registered.

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After you've decided on your business name, you must prepare and file articles of incorporation
with the corporate filing office. This document goes by a different name in a handful of states;
your state may instead use the term articles of organization, certificate of incorporation,
certificate of formation, or charter.
Your state's corporate filing office website should have nonprofit articles of incorporation --
either a fill-in-the-blank form or a sample on which you can base your articles. Although
preparing this document isn't difficult, you do need to include specific language to ensure that
you'll receive tax-exempt status. Your state's nonprofit formation packet, if available, may
include the required information. If not, or if you need help understanding the requirements,
consult a good legal self-help guide such as u
  
  
 , by Anthony
Mancuso (Nolo), to make sure your articles comply with your state's nonprofit law.

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After the corporate filing office returns a copy of your filed articles, you can submit your federal
501(c)(3) tax exemption application to the IRS. (The IRS requires you to submit a copy of your
filed articles with your application.) This is a critical step in the formation of your nonprofit
organization since most of the real benefits of being a nonprofit flow from 501(c)(3) tax-exempt
status.

To apply for your exemption, you must complete IRS Package 1023, 

  
   


 . For instructions on filling out this form, read IRS Publication 557, 


     . (You can obtain all of these items for free by calling 800-TAX-
FORM, or you can download them from the IRS website at www.irs.gov.) If you need a bit of
help deciphering the IRS-speak, consider downloading Nolo's plain-English eGuide, 
 

 

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While you can't actually file your exemption application until the corporate filing office has
approved your articles of incorporation, before you file your articles, take a couple of hours to
learn what it takes to qualify for the tax exemption. If you file your articles and then discover a
problem as you begin working through the tax exemption application, you could be stuck paying
taxes while you work through these issues -- or even learn too late that your group isn't eligible
for an exemption.

After the IRS reviews your application, it will send you a letter indicating that it has approved
your nonprofit status, or it might ask you for more information about your organization. The IRS
can also deny your application outright. If this happens, see a lawyer who specializes in
nonprofits. Nolo's Lawyer Directory provides comprehensive profiles of the lawyers who
advertise there, including each lawyer¶s education, background, areas of expertise, fees, and
practice philosophy.

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In a few states, you must complete a separate application to get a state tax exemption. In other
states, as long as you file nonprofit articles of incorporation and obtain your federal 501(c)(3)
tax-exempt status, your state tax exemption will be automatically granted. In still others, to get
your state exemption you must send in a copy of the IRS determination letter that granted your
federal exemption. Contact your state tax agency to find out what steps you must take.

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Next you must create bylaws, the internal rules that govern your nonprofit corporation. Bylaws
contain rules and procedures for holding meetings, voting on issues, and electing directors and
officers. To create bylaws, you can either follow the instructions in a self-help resource or hire a
lawyer in your state to draft them for you. Typically, the bylaws are adopted by the corporation's
directors at their first board meeting.

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Directors, who meet and make decisions collectively as the board of directors, have the authority
(and responsibility) to manage and run the nonprofit corporation. Many states allow nonprofits to
have just one director, but other states require at least three.

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The purpose of the first meeting of the board of directors is to conduct the initial business of the
corporation and take care of other formalities, such as recording the receipt of federal and state
tax exemptions.

The directors should first adopt the bylaws and elect officers -- state law usually requires a
president, secretary, and treasurer, and sometimes a vice president as well. Then, the directors
should authorize the newly elected officers to take actions necessary to start the business of the
nonprofit -- for example, setting up bank accounts and admitting members.

After the meeting is completed, minutes of the meeting should be created and filed in your
corporate records book. For more information, see Nolo's article Protecting Your Nonprofit
Corporation's Tax-Exempt Status.

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Many businesses, whether operating as for-profit or nonprofit corporations, partnerships, or sole

proprietorships, are required to obtain state or local licenses and permits before commencing
business. So, while you may not be subject to the kind of red tape that entangles profit-making
enterprises, you should check with your state department of consumer affairs (or similar state
licensing agency) for information concerning state licensing requirements for your type of
organization. For instance, a local business license (sometimes called your tax registration
certificate) may be required for your activities, and if you sell anything to consumers, you'll need
a sales tax permit.

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Even after you've incorporated, obtaining federal tax-exempt status is a critical step in forming a
nonprofit organization. Most of the real benefits of being a nonprofit flow from your 501(c)(3)
tax-exempt status, such as the tax-deductibility of donations, access to grant money, and income
and property tax exemptions. (For general information on forming a nonprofit corporation, read
Nolo's article How to Form a 501(c)(3) Nonprofit Corporation.)

To apply for tax-exempt status, you must complete IRS Form 1023, 

  
   


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. Completing this form can
be a daunting task because of the legal and tax technicalities you'll need to understand. We can't
give you complete instructions on how to complete the form in this article because it is so
complicated; for that, get u
  
  
 , by Anthony Mancuso (Nolo).
Here, we provide an overview of the form so you can familiarize yourself with the type of
questions you'll be asked to address.

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To get the most out of your tax-exempt status, you'll want to file your Form 1023 within 27
months of the date you file your nonprofit articles of incorporation. (For more information on
articles of incorporation, read Nolo's article Nonprofit Formation Documents: Articles of
Incorporation, Bylaws, and Organizational Minutes.) If you file within this time period, your
nonprofit's tax exemption takes effect on the date you filed your articles of incorporation (and all
donations received from the point of incorporation onward will be tax deductible). If you file
later than this and can't show "reasonable cause" for your delay (that is, convince the IRS that
your tardiness was understandable and excusable), your group's tax-exempt status will begin as
of the postmark date on its IRS Form 1023 application.

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Now let's take a look at the Form 1023. It's divided into 11 parts, with each part covering certain
information.

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You can obtain a copy of Form 1023 from the IRS website at www.irs.gov or by calling 800-
TAX-FORM.

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This section tells the IRS about your organization. It asks for basic information like the name of
your nonprofit corporation, contact information, and when you filed your articles of
incorporation.

Your nonprofit must have a federal employer identification number (EIN) prior to applying for
501(c)(3) tax exemption, even if it doesn't have employees. This can be done quickly and easily.
Even if your organization held an EIN prior to incorporation, you must obtain a new one for the
nonprofit corporate entity. For information on how to apply for an EIN, including information
about applying online, visit the IRS website at www.irs.gov.

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This section requires that you attach a copy of your articles of incorporation and your bylaws to
the application form. (Most nonprofits seeking 501(c)(3) status are corporations. If your entity is
an LLC, unincorporated association, or nonprofit trust, you should seek the help of a lawyer with
experience in nonprofit tax law to complete your Form 1023 application.)

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There are certain clauses that you must have in your articles of incorporation in order to get your
501(c)(3) exemption:

`? a clause stating that your corporation was formed for a recognized 501(c)(3) tax-exempt
purpose (e.g., charitable, religious, scientific, literary, and/or educational), and
`? a clause stating that that any assets of the nonprofit that remain after the entity dissolves
will be distributed to another 501(c)(3) tax-exempt nonprofit -- or to a federal, state, or
local government for a public purpose.

In this section, you state where these clauses can be found in your articles (by page, article, and
paragraph).

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Here you provide a detailed, narrative description of all of your organization's activities -- past,
present, and future -- in their order of importance (that is, in order of the amount of time and
resources devoted to each activity). For each activity, explain in detail:
 `? the activity itself, how it furthers an exempt purpose of your organization, and the
percentage of time your group will devote to it
`? when it was begun (or, if it hasn't yet begun, when it will begin)
`? where and by whom it will be conducted, and
`? how it will be funded (the financial information or projections you provide later in your
application should be consistent with the funding methods or mechanisms you mention
here).

 



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The purpose of this section is to prevent people from creating and operating a nonprofit for the
sole benefit of its founders, insiders, or major contributors. You'll need to give information about
all proposed compensation to, and financial arrangements with:

`? initial directors
`? initial officers (such as the president, chief executive officer, vice president, secretary,
treasurer, chief financial officer, or any other officer in your organization)
`? trustees
`? the five top-paid employees who will earn more than $50,000 per year, and
`? the five top-paid independent contractors who will earn more than $50,000 per year.

In computing the amount of compensation paid, include employer contributions made to

employee benefit plans, 401(k)s, IRAs, expected bonus payments, and the like. You must also
answer questions relating to possible conflicts of interest, which is an important part of the
application.

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If your nonprofit will provide goods or services as part of its exempt-purpose activities, you must
report this on Form 1023. The IRS wants to ensure that your nonprofit is set up to provide goods
and services to all members of the public -- or at least a segment of the public that is not limited
to particular individuals.

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If your nonprofit is a "successor" to an incorporated or preexisting organization (such as an

unincorporated association), the IRS wants to know this. Your nonprofit is most likely a
successor organization if it has:

`? taken over the activities of a prior organization

`? taken over 25% or more of the assets of a preexisting nonprofit, or
`? been legally converted from the previous association to a nonprofit.

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This part asks about certain types of activities, such as political activity and fundraising, that the
IRS scrutinizes closely. For example:

`? 501(c)(3) nonprofit organizations may not participate in political campaigns (although

some voter education drives and political debate activities are permitted). For information
on campaigning restrictions, read Nolo's article Limits on Political Campaigning for
501(c)(3) Nonprofits.
`? Certain types of fundraising are restricted, including bingo and gaming activities,
fundraising for other nonprofits, or using a professional fundraiser. For more information
on fundraising restrictions, listen to Nolo's podcast Can a Nonprofit Make a Profit?



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All groups wishing to obtain 501(c)(3) exempt status must provide a statement of revenues and
expenses and a balance sheet. Under rules in effect since September 9, 2008, an organization that
has been in existence for five years or more must provide financial data for its most recent five
years. Other groups must provide financial data for each year they have been in existence and
good faith estimates for future years for a total of three or four years, depending on how long the
organization has been in existence.

These revised financial data requirements relate to IRS rules that automatically classify all new
501(c)(3) groups as public charities as long as they can show in their Form 1023 that they
reasonably expect to receive qualifying public support. If your nonprofit is a public charity, you
will want to include all the information necessary to avoid misclassification as a private
foundation.

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This section relates to your nonprofit's classification as a public charity or private foundation.
Public charities, which include churches, schools, hospitals, and a number of other groups derive
most of their support from the public or receive most of their revenue from activities related to
tax-exempt purposes. Most groups want to be classified as a public charity because private
foundations are subject to strict operating rules and regulations.

Under IRS regulations effective September 9, 2008, all new 501(c)(3) groups will automatically
be classified as public charities for the first five years as long as they demonstrate in their Form
1023 that they reasonably expect to receive qualifying public support. These rules eliminate the
requirement that new groups applying for 501(c)(3) tax-exempt status seek an advance ruling on
their public charity status.

For the first five years, the group will maintain its public charity status regardless of how much
public support it actually receives. After the initial five-year period, the IRS will start to monitor
whether the group receives the public support necessary to qualify as a public charity.

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You must pay a fee when you submit your Form 1023 application. Check the IRS website for
new user fees that will become effective in 2010 after the IRS launches &'
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web-based software program to help with the 1023 application.

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After reviewing your application, the IRS will do one of three things:

`? grant your federal tax exemption

`? request further information, or
`? issue a proposed adverse determination (a denial of tax exemption that becomes effective
30 days from the date of issuance).

If you receive a proposed denial of tax-exempt status and you wish to appeal, see a lawyer
immediately.


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Once you've committed to an idea for a nonprofit, it's time to sit down and create a strategic plan
-- the working document that will chart your nonprofit's course through the coming years. A
strategic plan identifies your nonprofit's goals for a certain time period (generally one to three
years) and outlines how you will achieve those goals. Though your nonprofit will undoubtedly
engage in future planning for specific activities, think of the strategic plan as the "master plan"
for your organization.

Translating your hopes and dreams into concrete plans is an essential undertaking for lots of
reasons. First and foremost, making specific plans will help you get beyond your idealistic
visions and help you focus on exactly what your group hopes to accomplish -- and what you can
realistically expect to get done, based on your available resources. Drafting a plan transforms
abstract ideas into specific "to do" items -- a critical step in setting your nonprofit's wheels into
motion. Having a clear strategic plan in place will also serve you well when you seek to raise
money and/or build community support.

 


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At a minimum, a strategic plan should generally include the following sections:

`? a mission statement
 `? an outline of goals, objectives, and activities
`? an assessment of current resources, and
`? a strategic analysis.

Each section is typically a few paragraphs to a few pages long.

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Every nonprofit needs a mission statement: a clear description of the reason the nonprofit exists.
Your mission statement should be the first section of your strategic plan and will set the stage for
all that follows. Because all nonprofits are mission-driven, you must take care to define your
mission clearly. While you shouldn't agonize over your statement, it's important to put some
careful thought into articulating the mission that will guide your organization for years to come.

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Identifying more specific goals helps break down your broad mission into individual elements,
which you can then pursue with even more specific planning. For example, if your broad mission
is to create economic opportunities for teenagers in a certain city or district, you might have
specific goals of publicizing job opportunities for teens, mentoring teens in career development,
and nurturing teens' leadership and entrepreneurial skills.

Getting even more specific, you can identify specific objectives with deadlines (objectives are
closely related and similar to goals but more concrete and measurable). For example, if the above
nonprofit's goal was to mentor teens in career development, an objective might be to implement
a mentoring program in a certain city or district, by a certain time. It's often hard to judge
whether a nonprofit has successfully accomplished a broad mission or even a narrow goal, but
much easier to determine whether it has achieved a well defined, concrete objective.

Some nonprofits wisely go a step further and outline planned activities and programs separately
from objectives. Having activities or programs clearly defined will help your nonprofit
communicate with the public about exactly what you do, which can help greatly in getting the
public involved or attracting contributions -- not to mention its value in managing your
operations. When you are outlining specific activities or programs, remember that they should
flow from your list of objectives and help advance your mission.

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In this section of your strategic plan, you should include an assessment of all of your resources --
including money, people, expertise, skills, and other intangibles -- that are currently available to
your nonprofit. Your goal here isn't to detail your fundraising plan, but simply to develop a
realistic understanding of the assets you have in hand.

When assessing resources, lots of folks mistakenly think only in terms of money. As is true in
other areas of life, money can be a great help in getting things done, but it's also true that other
assets -- such as skills and experience -- can translate into getting your mission accomplished. A
troop of energetic, committed volunteers can be just as valuable -- sometimes even more so --
than cash in the bank or an expensive computer system.

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With your goals, objectives, and activities identified and your current resources assessed, you're
ready to do some true strategic thinking. In the realm of strategic planning, "strategies" are
practical ideas about how to make the best use of your resources to achieve your goals.

A common approach to strategic thinking is called a "SWOT" analysis -- an acronym for

strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are positive and
negative elements within the organization; opportunities and threats are positive and negative
elements outside the organization. A SWOT analysis is sometimes called a "situational
assessment" or an "environmental analysis," but they all use the same basic approach.

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`? Strengths are positive assets within your organization. Examples might include a highly
respected board member, a talented group of volunteers, or ownership of valuable
intellectual property, such as a book or software.
`? Weaknesses are negative aspects within your organization. Examples might include a
shortage of volunteers or outdated technology.
`? Opportunities are positive elements outside your organization. Examples might include a
high demand for your services or availability of a grant in your topic area.
`? Threats are negative elements outside your organization. Examples might include a
competing nonprofit or the demise of a major funder.

The key to doing a SWOT analysis is to think about ways to maximize the positive and minimize
the negative elements. Brainstorm about ways to use your strengths to take advantage of existing
opportunities and to overcome threats you've identified. Also focus on how you will minimize
your weaknesses to make your group less vulnerable to threats.

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Once you've completed all the essential elements of your initial strategic plan, let your plan sit
for a day or two before beginning a final review. This allows the planners to clear their brains
and look at it with fresh perspectives. It's a good idea to establish a firm deadline for
incorporating any final edits, to keep everyone in "wrap-up" mode and prevent endless rounds of
tinkering with the work you've already done.

Once your final edits have been incorporated, you may be finished. Or, if you plan to submit the
strategic plan to potential funders, you may want to spiff it up and produce a professional
document, perhaps using desktop publishing software. Package the information as necessary for
your intended purposes -- an internal working document can be much less formal than a package
you send to potential major donors.
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One of the fundamental tasks facing the founders of any nonprofit is establishing a board of
directors to oversee the organization. The board plays an essential legal and practical role in any
nonprofit, even if others (such as an executive director, paid staff, or volunteers) handle the
organization's everyday affairs.

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Nonprofits receive favorable tax treatment and other benefits precisely because they are created
to serve the public interest. And the nonprofit's board shoulders the legal duty to keep the
organization true to its public service mission, so that it continues to deserve its tax-favored
status. (This "public trust" role explains why nonprofit directors are sometimes called trustees.)

In addition to setting policies and maintaining the nonprofit's overall direction, a good board also
serves an immensely practical role. The board of directors:

`? defines the nonprofit's mission

`? establishes priorities
`? crafts strategies, and
`? ensures that plans and programs are implemented.

Without a committed board to tackle these tasks, a nonprofit can quickly run adrift, without clear
goals or any specific plans to achieve them.

Board members are also involved in a nonprofit's fundraising efforts. You should be able to
count on your board members to spread the word about your good work, use their connections to
gain access to potential donors, actively participate in fundraising campaigns, and -- when
financially feasible -- make their own donations. Whether a board member is more comfortable
working behind the scenes or asking for money directly, there should be a way for the whole
board to get involved.

Nonprofit board members often go beyond the traditional directorial tasks of setting policy and
defining a nonprofit's goals. Especially in small all-volunteer nonprofits (and even in those with
a small paid staff), board members often roll up their sleeves and do much of the nonprofit's
actual work, be it feeding the hungry, helping the unemployed, or cleaning the forests. (See
"How Board Members Are Different From Staff," below.)

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Most great boards share some common traits and qualities that enable them to lead their groups
creatively and effectively. The members of an ideal board of directors:

`? share a passion for and commitment to the nonprofit's mission

`? are willing to roll up their sleeves when necessary to help with the practical work
`? have strong ties to their communities
`? are diverse -- in age, gender, race, religion, occupation, skills, and background, and
`? are willing to support efforts to raise money.

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Generally speaking, the board is not in charge of the day-to-day affairs of the nonprofit. Taking
care of the many details involved in running the organization is the responsibility of the
nonprofit's staff, including the executive director, paid workers, and volunteers.

Of course, many nonprofits -- especially new and small ones -- are run almost entirely by the
board and other volunteers. Plenty of micro-nonprofits operate this way, which can make the
distinction between the board role and the staff role quite confusing. But it's key to understand
that the same person may sometimes play a board member's role, and sometimes an activist or
volunteer staff role. Board members should be clear on this: Although they may take care of all
the nonprofit's day-to-day details, they are not doing so in their capacity as board members.

Some examples of a board member wearing a "staff hat" --not a "board hat" -- include:

`? donning galoshes to help with a Clean Up the Wetlands day

`? stuffing envelopes
`? picking up chairs for an event, and
`? teaching a seminar.

On the other hand, when a board member is discussing whether certain programs fit into the
nonprofit's overall mission, that member is wearing a "board hat." Keeping this distinction in
mind will help you understand the board/staff relationship and the breakdown of roles that is so
important to the effective functioning of a nonprofit.

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Most new nonprofits appoint their very first board members as part of the process of
incorporating. Nonprofit corporations (and for-profit ones, too) are created at the state level,
most commonly by filing papers known as articles of incorporation with the secretary of state's
office. Those articles generally ask for the names of the nonprofit'sinitial board of directors. If
your state requires a minimum number of directors (many do and three is a common minimum),
you'll need to name at least that many in your articles. (To learn more about articles of
incorporation, read Nolo's article Nonprofit Formation Documents: Articles of Incorporation,
Bylaws, and Organizational Minutes.)
In established nonprofits, appointing board members is generally a more formal process. Often, a
nominating committee of existing board members evaluates the current board situation and its
needs, gathers names of prospective new members, and recommends candidates to the full board,
which then votes on whether to elect the new members. In nonprofits that give members the legal
right to elect directors, the members vote, rather than the board.

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One way to tell prospective board members what you expect is to create a "board candidate
FAQ" that communicates all of the important facts in a simple, one-page question-and-answer
format. Here are some examples of the types of questions that might be included in an FAQ for
prospective board members (you'll need to provide the answers to these questions):

`? What is the organization's mission statement?

`? What is the organization's history?
`? What are the board members' responsibilities?
`? How long does a board member serve on the board?
`? Are there any legal issues that board members should worry about?

-#   



For larger boards, consider breaking down the board's governance duties into smaller
committees. Some may be permanent (sometimes called "standing") committees to handle
ongoing issues such as finance, program development, membership, or the like. Other issues that
come up can be handled by creating a special (sometimes called "ad hoc") committee. Don't
worry about what they're called; just keep in mind that nonprofits typically use both kinds of
committees to handle regular needs and new issues as they arise.

Committees help maximize the board's productivity in several ways.

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The smaller committee can research and
break down complex issues and present its findings to the board, which can then move
forward to making decisions.
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committee is a great way to assign specific responsibilities to the people best able to
handle them.
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The finance committee, for instance, can and should maintain thorough and ongoing
management of the nonprofit's finances between meetings, so that the whole board can
deal with this key concern (based on the reports of the finance committee) at board
meetings.
`? %1'
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distribute responsibility for the many tasks boards typically need to tackle.
`? " 

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 In some nonprofits, specialized committees often
include people who aren't on the board of directors (a nonprofit that promotes physical
 fitness for diabetic children might have a doctor on one of its program committees, for
example).
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in a committee is a good way for inexperienced board members to increase their
involvement, develop confidence, and learn leadership skills.



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Raising money for a charitable or nonprofit organization is always a challenge, whether in good
times or bad. But you can make it easier for your nonprofit if you learn about all the different
methods of fundraising, and choose those that work best for your organization.

When reviewing your options, try not to rely on only one type of fundraising, especially if means
depending on sources that could dry up all at once, such as government or foundation grants. By
the same token, scattering efforts and trying every type of fundraising method simultaneously is
a recipe for trouble. The wise nonprofit will carefully plan an array of fundraising methods to
employ in the coming one to five years, based on its internal strengths and assets.

Here's a look at the different types of nonprofit fundraising methods and when they're best used.

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Ideally, the everyday people who believe in your organization's work should be its bread and
butter. (The exception is if your organizations's work is so technical or otherwise hard for the
average person to understand or sympathize with that only government or foundations are likely
to support it.) Their donations are a sign of community relevance and support and (conveniently
enough) come with very few strings attached. And their combined power may help you weather
difficult times (for example, if you lose a major grant).

Most organizations reach out to individual donors through a combination of direct-mail appeals,
newsletters, and special events (see "Holding Special Events," below). It's also important to
cultivate -- that is, develop relationships and maintain connections with -- your donors. Once you
get new donors, work to strengthen their engagement with your nonprofit. This often leads to
sustained or higher gifts. (For more ideas on bringing in new donors, read Nolo's article Getting
Charitable Donors For Your Nonprofit.)

A nonprofit can solicit many types of individual donations, whether in the form of cash, pledges,
stock in a company, property (real estate and personal), and more. And assuming your
organization is tax-exempt, donors can take a tax deduction in return (if they itemize).

 
9
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A certain number of individual donors will be sufficiently interested, and financially able, to
make major gifts -- in the thousands of dollars and up. However, such gifts won't usually come in
response to the same sort of outreach used to reach most individual donors.

The nonprofit's executive and development team will need to concentrate on developing genuine,
personal relationships with potential major donors. Traditionally, requests for large gifts are
made during a formal meeting, in which one or two people from the organization's staff approach
the donor with a compelling case for support (and, if appropriate, mention how the donor will be
recognized for the gift).

Other methods of attracting high-end gifts include planning special tours and trips, and holding
house parties, luxury auctions, or gala events. (To learn more about attracting major donors, read
Nolo's article Getting Charitable Donors For Your Nonprofit.)

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While also primarily focused on individual donors, a capital campaign happens outside a
nonprofit's regular, annual fundraising program. It's typically a coordinated effort to raise a large
sum of money for a particular project or goal, such as a new building or an endowment fund. It
may involve teams of volunteers, with specific outreach goals.

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Once a nonprofit is established enough to assure its donors that it will be around for years to
come, it can start encouraging them to leave gifts via their estate, most likely through a will,
trust, or other beneficiary designation. (To learn more about leaving gifts through an estate, read
Nolo's article Nonprofit Fundraising Through Inherited Legacy Gifts.)

Though some donors may take care of this on their own initiative, the nonprofit can support such
plans by offering information (in publications, seminars, and personal meetings) about how such
gifts will be put to a meaningful, lasting purpose. It's good to be able to assure these donors that
their final act of goodwill benefits something more exciting than the office-supply or coffee
fund. A simple reminder in your newsletter that leaving a gift in their will is a great way to create
a personal legacy is a good start, especially if you can point to a compelling way in which the
money might be spent, such as planting a tree.
Any nonprofit can solicit basic estate gifts, but more sophisticated organizations can also offer
more complex giving vehicles, such as charitable annuities and charitable remainder unitrusts.
The basic idea is that donors give assets to the organization for investment, but either continue to
derive some income from the investments during their lifetime (assuming the stock market hasn't
completely flatlined), or give the organization the income and require that the principal
ultimately be returned to the donor or heirs. The donor gets tax benefits, and the nonprofit gets
an immediate source of income.

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Almost every nonprofit, big or small, holds a special event or two each year -- whether it's an
impromptu garage sale or a gala annual dinner. Events are a fun and easy way to mobilize
volunteers who aren't otherwise interested in fundraising.

But there's a catch. The bigger the event, the greater the risk of it turning into a financial flop.
And even successful events often produce a relatively low return after you consider all the hours
that go into them.

Still, events can serve purposes other than straight fundraising, namely to raise the organization's
visibility and bring in new members. The key is to identify the main purpose of the event (for
example, is it a friend-raiser or a fundraiser?) and then plan with that in mind.

Another key principle to incorporate into your event planning is that ticket sales are unlikely to
cover the entire event cost, much less turn into a profit source. You'll want to augment the
income by finding event sponsors and incorporating other methods of fundraising within the
event, such as raffles or an auction.

And whether or not you're an environmental organization, think about how you might "green"
your event, both to be a good environmental citizen and for the sake of public relations. You'll
find some tips on that in Nolo's article Planning a Green Charity Event.

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An increasingly popular method of nonprofit fundraising is to enter the world of business, and
sell goods or services to regular (or charitably minded) consumers. This can encompass anything
from kids selling cookies to museums running gift shops to organizations providing their own
clients with job training, perhaps in bicycle repair or Web design.

It's important to remember that a nonprofit is a business, and is itself allowed to make a profit --
for example, on client fees -- so long as it doesn't use those profits for the personal benefit of
those in charge. But running a separate business within your organization does have tax
implications, and may lead to the nonprofit having to pay tax on the earnings or, in a worst-case
scenario, losing its nonprofit status. (For more information, read Nolo's article Tax Concerns
When Your Nonprofit Corporation Earns Money.)

When it works, business activities can provide a source of income with almost no strings
attached -- no foundation reporting requirements or donor wishes to worry about. But launching
a business can be a risky proposition even in the for-profit world, so it's best to start small, get
good advice, and be realistic.

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Nonprofits are entitled to seek grants from foundations -- that is fellow nonprofits, often started
by wealthy families or corporations, which give out money for specific charitable purposes of
their choosing. The grant is usually for a specific amount of money, either paid in advance or on
a reimbursement basis.

The best thing about grants is that they're usually for a reasonably large sum of money -- at least
a few thousand dollars, and often far more. They often allow a nonprofit to start a new project or
hire a new staff person.

The worst thing about grants is that they don't come with any guarantee of renewal. In fact, the
opposite is true, since many foundations prefer to move on to the next new thing, and expect that
your group will have used the grant as leverage with which to increase other forms of support
(As if!). Grants also tend to come with stringent oversight and reporting requirements.

To apply for a grant, an organization can make use of research tools provided by groups like The
Foundation Center (at http://foundationcenter.org). Application procedures are usually spelled
out by each individual foundation. Be sure that your group or project really fits the foundation's
eligibility requirements -- a common complaint from foundation grantmakers is that nonprofits
submit inappropriate grant proposals.

"
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Another source of grant funding is local, state, and federal government agencies. These grant
amounts are often high, so that some nonprofits subsist almost entirely on government money.
And, being able to attract and keep government grants gives your group stature and credibility,
thus helping you attract other funds.

The downside is the often overwhelming application requirements -- mounds of paperwork, and
added requirements such as the formation of oversight committees. Also, government funders
tend to be risk averse, preferring established nonprofits with proven records of success to new,
grassroots initiatives.

#8

   9

The business sector, sometimes in an effort to boost its public image, is also a potential source of
nonprofit funding. The largest gifts are typically available through corporate foundations, as
described above. However, you may also be able to approach smaller businesses for donations,
both cash and in-kind, as well as for sponsorships, say, of a team or event.

However, nonprofits can also request other forms of gifts -- for example, a company sponsorship
of a sports team or a table at an event, in-kind gifts of equipment and goods (including for an
auction), or volunteer help from the company's staff. Find out the business's specific procedures,
and whether there's a person dedicated to working with charities, before making your pitch.

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Individual donors are crucial to the fundraising success of most nonprofits. But finding new
donors is among every nonprofit organization's biggest challenges. So what's the best way to
build your list of donors? Here are ten good methods.

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Every name added to your mailing list is potentially precious, representing someone who can be
cultivated into a major, lifetime, or even legacy donor. You're probably doing a lot to collect
names already. But could you be missing anyone? Don't forget to collect the names of people
who call for advice, pay cash to attend an event or benefit (or come to an event as a guest of
someone else), or stop at your open house.

To capture names of non-paying guests at events, hold a small raffle or giveaway, register people
for a silent auction, or simply put out a sign-up sheet for people wanting more information.

Any member of your organization's staff who interacts with the public should also be ready with
a standard question like, "Can I take your address or email and send you more information about
what we do?" Email is often the least threatening for people, who know it's easy to delete if
they're not interested.

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 Putting someone on your mailing list
shouldn't be a prelude to drowning them in a stream of requests for money. You need to be ready
to also follow up with genuine information, such as a newsletter or encouragement to get
involved in your activities. And, in case donors make special requests -- such as asking to be
contacted only once a year -- try to have a system in place to honor those.

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Be creative about ways to reach out to people so that they want to give you their names, or the
names of friends. For example, some theatre troupes will ask for audience participation during
intermission -- often to vote on the best outcome for the play -- but require both a name and
email address in order to vote.

Many advocacy groups ask their website visitors to sign petitions -- and forward them to their
friends -- also requiring contact information. Contests are also a way to create action through
your website -- for example, a competition to raise the most money through grassroots efforts or
to suggest the best name for an animal under your care.

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 It costs a lot less to keep a donor than
to find a new one -- for most organizations, around 20% of the amount.

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Do this periodically so you capture information from new staff and changed contacts and friends.
Or consider an outreach campaign -- for example, ask volunteers to make a pitch at their work
place for more volunteers (especially if they work nearby), or to their friends.

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One new major donor will make up for a big shortfall in other donors. If you've got a connection
to a potential high-end donor, look for a hook, or something your organization can uniquely
provide to pique that person's interest.

The classic example is a foreign trip or nature tour, especially popular among environmental
organizations. Tailor the trip or tour so that it introduces participants to the work your nonprofit
does. Sign up existing donors and then invite new ones. And be sure to get names of people who
couldn't come but want to hear about upcoming events.

Charge participants enough to cover the event costs and more -- but don't focus only on
immediate profit. Seeing your work up close may impact a participant so much that he or she
beings making major gifts, hosts a fundraising reception at his or her house, gives you names
of friends, and so on.

If you're not an environmental organization, look for a other things you can offer to potential
high-end donors -- say, a behind the scenes tour of your prenatal unit or theater set. There's no
substitute for showing what you're doing, especially if it's a sneak peek not available to the
general public.

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Getting volunteer help can offset your need to fundraise, and many volunteers turn into donors.
But training and orienting new volunteers can be a full-time job by itself. That's why planning a
short-term or temporary volunteer activity can be ideal, like a fixing a building or cleaning up a
beach. And it attracts many people who are too busy to sign up for a longer commitment.

Find new volunteers by:

`? approaching a local business about having its staff come

`? posting your event on volunteer or social networking websites (as well as your own
website), and
`? talking to local religious organizations, schools, or community groups.

Be sure to make the day fun, collect the names of every participant, and ideally, reward them
with food!

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If you're using direct mail to reach out to prospective new donors, you may have experience with
"buying" (really, renting) a mailing list from a marketing organization. But if this isn't in your
budget right now, think about a one-time trade with another nonprofit.

Although research shows that you won't end up stealing away each other's donors, both of you
will probably feel more secure if your missions aren't too similar. But look for alignments in
donor sympathies -- for example, a donor who supports military veterans counseling services
might also support a program that retrains veterans in organic farming techniques.

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If you don't have a website yet, this should go high on your priority list. It's like a phone book
entry -- you hardly exist without it and it's easy to set up. But too many nonprofits apparently fail
to remind the Web designers that converting visitors to donors is a high priority. For details on
how to do this, read Nolo's article Using Your Nonprofit's Website to Help Fundraise.)

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If your organization isn't usually in the public eye, hold an event with another organization that
is. For example, a women's services group might help plan and carry out a performance by a
women's choir. Of course, your groups could trade mailing lists for purposes of promoting the
event, and maybe for other purposes, too. Don't forget to use the intermission or other break to
cross-promote both groups to people who attend.

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Many organizations have pools of potential donors -- like alumni, or past clients -- that they can't
quite figure out how to turn into donors. Also, every organization has some lapsed donors, who
were interested enough to give money to you once, and may be ready to be approached again.
To determine how to best get these folks to donate, take a hard look at how your organization
communicates with the world. For example, if you publish a newsletter, does it assume that its
readers are mostly of a certain age? If so, include stories directed at older or younger readers. For
help on publishing stories and information that will help your nonprofit, get 
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If reaching younger people is your challenge, ask a young staff person to help, perhaps by
creating some buzz on a social networking site.

- 
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Potential donors -- and maybe you, too -- may be tired of the formulaic letters, gala dinners, and
other standard fundraising approaches. For a break, try something offbeat (but not too time-
consuming). Perhaps a dunk tank at a local festival, a moustache contest (online or off), or some
variant of cow bingo.

At the very least, you may get some press coverage for your nonprofit, which is another nice way
to raise awareness and even direct contact from interested supporters.

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The words "your contribution is tax deductible" are music to a donor's ears. While getting a tax
deduction is not the sole motivation for most charitable donations, it's an important factor --
indeed, about 85% of all charitable contributions are made by individuals who deduct their
donations.

However, not all charitable contributions are tax deductible. Whether a donation is deductible
depends on a number of factors -- including who the donation is given to, when the donation is
made, the purpose of the donation, and the donor's particular tax situation. An identical
contribution may be deductible by one donor, but not by another. To complicate matters, the IRS
has imposed new, even more restrictive rules on donations. These new rules require more
documentation and tax filings by both nonprofits and people making donations to them. In some
cases, the new rules limit the amount that can be deducted. All this has made the charitable
fundraiser's (and donor's) life more difficult than it used to be.


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The words "contribution," "donation," or "gift" are typically used to refer to money or property
received from a donor. These words mean essentially the same thing and are often used
interchangeably. In the nonprofit world, however, people tend to use the word donation for small
gifts -- say an item of clothing -- and reserve the word contribution for larger gifts -- real estate,
for example.

Charitable deductions are claimed by donors on their individual tax returns (IRS Form 1040). It
is up to the donor and his or her tax adviser -- not the nonprofit that receives a donation -- to
determine how much to deduct, and when and how to deduct it. The nonprofit's role in the
charitable tax deduction process is fairly limited. Subject to some important exceptions, a
nonprofit is not required to report donations to the IRS or make any tax filings when it receives a
donation. The nonprofit's main responsibility is to make sure it complies with any substantiation
and documentation requirements for the donations it receives.

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Whether--and to what extent--a donation is tax deductible depends on a donor's particular tax
situation. Donors, with the help of a tax adviser if necessary, must apply the general deductibility
rules to their specific circumstances. Each donor's situation is unique and will affect how much
that person can deduct, or whether a donation is deductible at all. Thus, no matter what role you
have at your nonprofit, you should


 


 
on donations.
You are not the donor's lawyer or tax adviser.

This is also why blanket statements in fundraising solicitations or thank you letters such as "your
contribution is tax deductible" -- while they may be technically accurate and perfectly legal -- are
often misleading. Instead, in letters to donors you should state that your nonprofit is a Section
501(c)3 nonprofit and that their gift ³may qualify as a charitable deduction for federal income
tax purposes.´ It¶s also a good idea to advise consult with their tax advisers or the IRS to
determine if a contribution is deductible. Never promise or assure a donor that it is.

That said, it is never in a nonprofit's interest to lose a valuable charitable deduction because the
donor didn't understand the tax rules. Likewise, it is not good for a donor to make a contribution
thinking it will be deductible when it is not or that it will save more in taxes than it really will. In
either case, you'll end up with a disappointed or angry donor who may decide not to make any
more contributions to your nonprofit.

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While everyone at your nonprofit doesn't need to become an expert on charitable contribution tax
rules, it is helpful if some key people on your staff--particularly those involved in fundraising
efforts--understand the basic charitable deduction rules. This might include your:

`? executive director
`? development director
`? board of directors
`? paid development staff
`? paid staff in nondevelopment roles
`? volunteers who help fundraise, and
 `? outside consultants.

IRS rules make some types of donations easier or more advantageous tax-wise than others. This
ends up encouraging people to make certain types of donations while discouraging other types.
Your fundraising strategies should always take into consideration the tax effect of a donation.
You can use fundraising letters, emails, and other communications to explain to potential donors
the tax benefits of particular types of donations--for example, in your fundraising letter, you
could advise donors of the potential tax benefits of donating publicly traded stock that has gone
up in value since it was purchased.

Your nonprofit can also help make sure that your donors understand the current IRS
requirements for donation by post basic information on your website, perhaps in the form of
FAQs (frequently asked questions). You can also refer donors to the IRS publication on the
subject, IRS Publication 526, Charitable Contributions. It is available at the IRS website at
www.irs.gov.

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If your nonprofit provided any goods or services in exchange for a donation, only a portion of the
contribution is tax deductible. The donor should not claim a tax deduction for the portion of the
donation that paid for the fair value of the goods and services. The technical way of saying this is
"The tax deduction is limited to the excess of the contribution over the fair market value of any
items received in exchange for the donation." To help donors estimate the deductible portion of a
donation, you can include one of the following statements in a thank you letter, depending on the
circumstances: ³No goods or services of any value were provided to you in exchange for your
donation.´ Or: ³The estimated value of goods or services provided in return for your donation
were $_____.´

In all thank you letters, it¶s a good idea to include the following reminder for donors: ³Please
keep this written acknowledgment of your donation for your tax records.´

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Whether your nonprofit's mission relates to preserving the natural environment or something
completely different, you don't want your upcoming special event to turn into an example of
waste and excess, and neither do your donors. On the other side of the coin, attention to
environmental goals when planning and implementing an event can boost interest, attendance,
audience excitement, and participation -- and may even bolster media attention. But where do
you begin? Greening every aspect of your next event may not be a realistic goal. But with some
prioritizing, budgeting, and consideration of your nonprofit's core values, you may be able to
choose and use many of the tips below.

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A country inn or your board member's vacation home may be a beautiful setting for a gala event
-- but before you sign up, think about issues like how many people will be driving to get there
and whether the place has ready access to a waste management server that provides recycling.
Perhaps a more centrally located facility (such as a downtown museum, hotel, or gallery) would
reduce gas consumption. Of course, because most people hop into their car without thinking
twice, you'll need to provide alternate directions to the event using public transport and bicycles
(and ensure the availability of safe bike racks or storage). You'll also need to help coordinate and
encourage (or even sponsor) carpools or shuttle services, particularly for those donors who feel
hesitant about taking public transport. Also look into the venue's history of attention to and
cooperation with environmental goals -- and its willingness to sign a contract stating they'll
comply with your agreement regarding environmental issues.

Many venues are taking the initiative and getting "LEED" certification (Leadership in Energy
and Environmental Design) from the nonprofit U.S. Green Building Council, Inc.
(www.usgbc.org/). This certification means the facility has been built, designed, and operated for
improved environmental and human health performance.

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If your nonprofit is planning a charity event, sending "Save the Date" notifications by email is
now completely appropriate and will save a lot of paper. For the invitations themselves, you (and
your donors) may prefer traditional paper -- but you can talk to a printer about how to minimize
the size of the invitation and the amount of paper used. One possibility is to issue a small
invitation -- even a postcard -- and then direct people to a page on your website for detailed
program information and registration instructions.

Also look into using recycled paper and soy-based inks (which are made from a renewable
resource, are far less toxic than regular inks, and are easier to wash off during the recycling
process). The costs have become close to comparable.

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If you'll be serving food, consider what you'll buy or use in the way of cups, plates, and serving
ware. "Real" or reusable dishes, utensils, and cloth napkins are obviously best. If these are
impractical, a quick online search will bring up an array of environmentally conscious suppliers
of serving products, so that you can comparison shop -- but don't forget to favor local vendors, so
that the goods don't have to consume energy making one last trip across the country. Note that
"compostable" is better than "biodegradable" -- that is, it refers to something that breaks down as
easily as paper and is nontoxic. You can save money and demonstrate environmental
consciousness through the simple step of not serving water in individual plastic bottles, but
putting out pitchers and reusable (or at least recycled-material) cups. And if you'll be serving
mainly appetizers or snacks, going with finger foods means you won't have to put out forks.

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When planning flowers, decorations, and gifts for your charity event, remember that less can
definitely be more. Now is not the time, for example, to plan a theme party with lots of plastic
leis, disposable hats, and so forth. With a little creativity, you can save both money and the
environment. For example, how many of your board members have beautiful flowers or shrubs
growing in their own garden that they'd be willing to clip from and bring along to an event --
even if you hire a professional to do the arranging? (And while your board members are at it, ask
them to check their houses for spare vases -- almost everyone has a cheap glass flower holder
that's taking up space after their last floral delivery.) Another option for centerpieces is potted
native plants, which can be reused or raffled off.

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Start by investing in reusable nametag holders for your nonprofit's event. You'll need to create
paper inserts with people's names, then collect the badges at the end of the event for reuse.
Consider also how many handouts you need to provide. For disseminating general information
such as a map, can you post a few in highly visible places rather than putting a copy in
everyone's folder? When handouts are necessary, create double-sided printouts as often as
possible. And don't feel you need to provide a tote bag! People have plenty of those already.

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Your food choices for the event -- and the way the food is served -- make an important statement
about your environmental commitment. Organic, seasonal, locally grown, and sustainable food
sources should be your first choice whenever economically possible. Many caterers and
restaurants specialize in such menus -- and as you know, some may be willing to offer you a
nonprofit discount, particularly if you give them lots of good publicity. Be sure to offer
vegetarian and vegan options. Going with buffet service rather than individually boxed or served
meals can reduce both food and packaging waste. Even when it comes to snacks, avoid
individually packaged items in favor of trays of fruit, crackers, or trail mix. The same goes for
condiments, cream, and sugar (to go with your fair-trade coffee). What about the leftovers?
Either arrange for guests to be able to take home doggie bags or contact a shelter ahead of time
to set up a donation.

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Ideally, you live in an area where your waste management company separately picks up garbage,
recyclables, and possibly even compostable material (if not, call and ask when they will, to put a
little pressure on). If such service is provided, great -- but you'll still need your audience's
participation in making it work. First, make sure that the garbage and recycle bins for the event
are prominently located and labeled. An announcement during the event reminding people of the
importance of using the right bin helps, too. If possible, keep your eye on the waste as the event
closes down. Make sure that your cleanup crews got the message and don't just toss all the
recyclables into a dumpster out back. And make sure the bartenders (if you're using any) are
putting their used bottles into the recycle bin.

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Your choice of venue will determine, in part, how much energy your event will need to use. But
you can ask questions about things like whether the venue uses CFL bulbs or if a biodiesel
generator will be used for an outdoor event. Scheduling your event during the daytime and in a
naturally-lit location can also reduce the need for artificial light.




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If you're involved in a fledgling nonprofit organization, you and the other folks active in the
group have probably wondered whether or not you should incorporate. Becoming a nonprofit
corporation requires some paperwork, but for many groups, the benefits of nonprofit status
outweigh the complications. Here are five circumstances that may make it worth your while to
incorporate.

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If your group will make a profit from its activities, becoming a nonprofit corporation can yield a
great benefit: As long as the money you make is related to your charitable activities, your
nonprofit corporation won't pay income tax on it.

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Better Books and Learning begins as a part-time effort by a few dedicated individuals to hold
book groups for disadvantaged youth. The volunteers pay all of the expenses out of their own
pockets, and the group never turns a profit. Then a board member of a local junior college asks
the group to administer and run book groups as part of the college curriculum -- for a fee. Since
the group will now show a profit from its educational activities, it decides to incorporate as a
nonprofit and seek tax-exempt status with the IRS.

For more information on whether income is "related" to your group's activities, and thus not
taxable, see Tax Concerns When Your Nonprofit Corporation Earns Money.
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Without tax-exempt status, your group is unlikely to qualify for many public and private grants.
While you can form a nonprofit, tax-exempt association rather than a corporation, qualifying for
a tax exemption as an association is harder -- it requires preparing and adopting a complicated set
of organizational papers and operating rules. Further, it's generally easier to get the IRS to
approve a tax exemption for a nonprofit corporation.

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If your organization becomes a tax-exempt nonprofit corporation, donors can deduct their gifts to
your group on their federal and state tax income returns.

$ 

For Shore United wants to sponsor monthly cleanup drives to pick up and haul away trash left
along the local bay shore. They've enlisted a number of enthusiastic volunteers, but they need
funds to rent a truck, buy gas, and pay for volunteers' meals. They know that many people in the
community would chip in to help fund their effort if their group was a recognized public charity
eligible to receive tax-deductible contributions. Incorporating the group as a nonprofit
corporation and applying for tax-exempt status can help them raise these much-needed funds.

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If your group finds itself the target of a lawsuit, incorporation can provide welcome peace of
mind. Nonprofit corporations can be sued -- but their members and directors are generally
protected from personal liability, meaning that their own money, houses, cars, or other property
isn't at risk. That's not true of an unincorporated association.

$ 

Engineers for the Environment is a nonprofit consulting firm that helps developers prepare
environmental impact reports for nonprofit housing developments. To avoid legal liability if
unforeseen federal and state guidelines cause costly delays, the firm decides to incorporate their
organization as a nonprofit.

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Although nonprofits may engage only in very limited political advocacy (unless they elect to
follow special federal lobbying rules), advocacy efforts may occasionally draw a nonprofit into
an unwanted lawsuit. Incorporating can support directors and officers in defending the lawsuits
and protect them from personal liability.

$ 
Citizens for a Smoke-Free America informs the public about the health hazards of secondary
smoke from cigarettes. The group decides to campaign for local legislation banning cigarette
advertising on billboards in the community. It expects an unfriendly response from cigarette
advertisers in the form of expensive and time-consuming lawsuits against the organization and
its directors and officers. The group decides to incorporate before beginning the campaign, to
allow the corporation to pay the officers' and directors' legal expenses, and to insulate the
directors and officers from personal liability.

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Although these aren't the main reasons people form nonprofit corporations, nonprofits can take
advantage of other benefits, including:

`?  
  
 Nonprofits can apply for and receive a mailing permit that gives
them a special reduced nonprofit rate for mailings. This is especially helpful for
organizations that will do a lot of solicitation by mail.
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 In addition to an exemption from income taxes, nonprofits are
usually exempt from paying property taxes on real estate and other property. Contact
your county assessor's office for more information on this property tax exemption, which
is called a "welfare exemption."

To learn more about forming a nonprofit corporation, see the article How to Form a 501(c)(3)
Nonprofit Corporation. For detailed information, see the book u
  
 

 , by Anthony Mancuso (Nolo).