A good number of nonprofits in Texas are 501c(3) organizations. This simply entails that they were established for religious, charitable, scientific, literary, or educational purposes and that they also qualify for federal and state tax exemptions.
To establish a 501c(3) tax-exempt organization in the lone star state, you have to first form a Texas nonprofit corporation.
A nonprofit corporation is a regular corporation that does not share any of its profits with its members, directors, or officers. This type of corporation can be established for any lawful reason as long as it falls within the Texas Business Organization Code.
However, not all nonprofit corporations in Texas are exempt from federal or state taxes. A nonprofit organization will have to meet some specific requirements to be exempt. Before you can establish a 501c (3) organization, you will first have to create a nonprofit corporation in Texas and then file for tax-except status.
You need to apply with the Texas Comptroller of Public Accounts and the Internal Revenue Service to attain tax-exempt status. When starting a nonprofit in Texas, it is also necessary you create your mission statement early in the process.
In Texas, a nonprofit organization is expected to have at least three directors on its board, unless the organization will be fully managed by members. Aside from that, you will also need an incorporator for your new business. Your incorporator can be another corporation, a person who is at least 18 years, or another legal entity.
After that, you have to pick a name for your Texas nonprofit. Note that the name you pick should not be similar to any other existing entity or one that’s reserved by the Secretary of State.
Owing to that, you should invest time to check if your preferred name is available by checking the Secretary of State’s online directory (SOSDirect). Aside from that, you can call or email the Secretary of State’s office to request a name check.
Steps to Get a 501c3 Non-Profit in Texas
These are the processes involved with obtaining a 501c3 nonprofit status in Texas.
Table of Content
- Pick a Name for Your Texas Nonprofit Corporation
- Choose your Incorporators and Directors
- Appoint a Registered Agent
- File Texas Articles of Incorporation
- Apply for an Employer Identification Number
- Hold Organization Meetings and Establish Nonprofit Bylaws
- Apply for Federal and Texas State Tax Exemptions
- Register for Charitable Fundraising
Pick a Name for Your Texas Nonprofit Corporation
This is the first step to take when looking to get a 501c3 nonprofit in Texas. Note that the name you pick should not be similar to any other existing entity or one that’s reserved with the Secretary of State. You can check if your preferred name is available by checking the Secretary of State’s online directory (SOSDirect).
You can also call or email the Secretary of State’s office to request a name check. You can reserve a name for 120 days by filing a Name Reservation form (Form 501) with the Texas Secretary of State. This reservation can be filed online through the Texas Secretary of State SOSDirect website or filed by mail. The filing fee is $40.
Choose your Incorporators and Directors
After you have chosen a name, the next step will be to pick the Incorporators and Directors for your Board of Directors. Have it in mind that these individuals will be the leaders of your nonprofit and can help pilot the affairs of the organization.
In Texas, a nonprofit organization is expected to have at least three directors on its board, unless the organization will be fully managed by members. You will also need an incorporator for your new business.
Your incorporator can be another corporation, a person who is at least 18 years, or another legal entity. Your board members are not necessarily expected to be residents in the state; therefore, if you are a national or international organization, this makes it more convenient.
Appoint a Registered Agent
In Texas, every nonprofit corporation is expected to have an agent for the service of process. Have it in mind that this is an individual or corporation that would receive legal papers on behalf of the corporation if it is sued.
This agent will need to have a physical street address in Texas, not a post office box. Small nonprofit corporations typically name a director or officer to act as the initial agent. The agent will also need to agree or consent to the appointment.
File Texas Articles of Incorporation
You need to understand that filing your Articles of Incorporation is what makes your nonprofit official. The Certificate of Formation for a Nonprofit Corporation can be applied for by mail, fax, or in-person for a $25 fee. You will also need to include the original application and one copy when you forward the application.
Note that the Secretary of State will return a file-stamped copy to you once it is approved. It takes around three to five business days to finalize this process, but you can pay an extra $25 to expedite the process and get it done in two business days.
Apply for an Employer Identification Number
After you are done filing your Texas Articles of Incorporation, the next step will be to apply for an Employer Identification Number (EIN) with the IRS.
This particular identification is provided to every organization in the United States, and you can easily obtain one by filling Form SS-4. Ensure to print out the paperwork right before you log off the website as you will not receive another notice for this number.
Hold Organization Meetings and Establish Nonprofit Bylaws
Your first board meeting is most often referred to as the organizational meeting of the board. The board will be expected to carry out the following actions:
- Approve the bylaws
- Appoint officers
- Arrange an accounting period and tax year, and
- Approve initial transactions of the corporation, such as the opening of a corporate bank account.
Note that once the meeting is completed, minutes of the meeting will have to be created. Also remember to set up a corporate records binder to hold the corporation’s articles, bylaws, consent forms, minutes, and other necessary documents
Apply for Federal and Texas State Tax Exemptions
Although a nonprofit is not expected to pay taxes, have it in mind that you will first have to apply with the Internal Revenue Service (IRS) and the state before you can obtain the tax-exempt status. To obtain this status, here are necessary things to do:
- 501©3 Federal Tax Exemption: To obtain 501©3 Federal tax-exempt status from the IRS, you will have to file either form 1023-EZ and pay a $275 fee or Form 1023 with a $600 fee. It can take up to six months to receive your letter of determination.
- Texas State Income Tax Exemption: You will also need to apply for Texas franchise and sales tax exemptions. It is pertinent to note that all nonprofits are eligible to receive this exemption, but you will need to apply for this status with the state first.
- Franchise Tax: You need to apply for your franchise tax exemption with the Texas Comptroller’s office online. You will also be expected to provide a copy of your IRS determination letter if you have one. You can apply for state tax exemption before receiving your federal tax-exempt 501©3 status. You will also need your Texas Certificate of Formation and your bylaws.
- Property Tax: If you intend to purchase an office for your nonprofit corporation, then you qualify for property tax relief.
You will first have to obtain your 501©3 nonprofit status from the IRS and your Texas Franchise tax exemption. 50-299 is a downloadable form on the Comptroller’s website. There is no extra fee, but you will have to apply between January 1st and April 30th.
Register for Charitable Fundraising
In Texas, you will have to file Form 202 to incorporate a nonprofit organization and raise funds. Note that this Form 202 is the Texas certificate of formation for all nonprofits including 501©3. 501©3 and other nonprofits are not expected to register with the state before soliciting funds, except for Veterans and Public Safety nonprofits.
If you are a Veterans organization, you will have to register with the Secretary of State’s office and fill form 3501. The Veterans Organization Registration Statement comes with a $150 fee. If your Veterans organization intends to use an outside solicitor, you will have to post a surety bond that ranges from around $1,000 to $25,000 and will have to be renewed every year.
Public Safety organizations, independent promoters, and Public Safety publications are also mandated to register with the Texas Secretary of State before soliciting funds. You will have to use the Form Series 3200, and it comes with a $250 fee. Solicitors for these organizations will also need to register and pay a $500 filing fee.
Just as it was noted earlier, not all Texas nonprofits are automatically exempt from taxes. To be considered exempt, you have to file additional paperwork with the IRS and the state.
To get federal tax-exempt status from the IRS, you will first have to complete IRS Form 1023 or Form 1023-EZ, depending on the size of your budget. After you must have obtained your federal tax exemption, you can then apply for your Texas state tax exemption. This may include exemptions from income, property, sales, and other state taxes.