What is a nonprofit?
A nonprofit organization is a business entity created with a mission or public purpose. A nonprofit organization is not formed to make a profit for its members, directors, or officers. Any income earned by the organization is used to support the organization’s mission.
Some nonprofits are also tax-exempt organizations, which means the IRS recognizes them as operating exclusively for approved purposes. Tax-exempt organization can be:
- Charitable
- Religious
- Scientific
- Educational
- Other purposes allowed under federal law
Tax-exempt status has two main benefits:
- The organization does not pay federal income tax.
- Donors can deduct contributions on their personal tax returns.
How would I start a nonprofit?
Forming a nonprofit and applying for tax-exempt status can be complex. The steps to form a nonprofit may vary depending on the organization’s mission and structure. Many of the steps involved are complicated and may require professional help. The Community Law Center may be a good starting point for legal advice.
Typical steps include:
- Define Your Mission and Team
- Write a clear mission statement.
- Recruit a group of people committed to the mission.
- Create a fundraising plan.
- Draft Bylaws
- The bylaws are the rules that govern how the Board of Directors will operate.
- Incorporate as a Maryland Nonstock Corporation
- File Articles of Incorporation with the Maryland State Department of Assessments and Taxation (SDAT).
- Register a Trade Name (if needed)
- Required if your organization’s operating name is different from the one in your Articles of Incorporation.
- File the registration with SDAT.
- Get a Federal Employer Identification Number (EIN)
- Hold an Organizational Meeting
- Adopt bylaws.
- Elect directors.
- Approve initial actions for the organization.
- Apply for IRS Tax-Exempt Status
- File Form 1023 or Form 1023-EZ with the IRS.
- Register for Charitable Solicitation in Maryland
- Required if your nonprofit asks for donations.
- Read the law: Md. Code, Business Regulation Title 6.
- Complete Maryland’s Combined Registration Application
- Complete the application through Maryland Tax Connect.
- May include registering for state taxes, getting insurance, and applying for licenses or permits.
Ongoing Requirements for Nonprofits in Maryland
The ongoing requirements to keep an organization in good standing are based on the needs of the organization. These may include:
- Filing Form 1 Personal Property Return with SDAT (if incorporated).
- Submitting annual IRS forms (990-N, 990-EZ, or 990).
- Following employment laws if you have employees or contractors.
- Maintaining insurance for your organization, board members, and officers.