How to Change My Business to a Nonprofit

Apply to the IRS to change your business to non-profit status.
Apply to the IRS to change your business to non-profit status. (Image: Jupiterimages/Creatas/Getty Images)

An existing business in the United States can change from a registered for-profit company to a non-profit corporation if its activities qualify. A non-profit business in the U.S., most often known as a 501(c)(3) corporation enjoys federal tax breaks. Most non-profit businesses are involved in charitable activities to serve the underprivileged public. Social clubs and agricultural organizations may also qualify as they exist to serve their respective groups rather than to make money. The Internal Revenue Service oversees non-profit organizations.

Determine if your business will qualify for non-profit status. Only companies that provide a service or product to benefit the underprivileged public are able to obtain 501(c)(3) status. Common non-profit activities include religious, educational or medical facilities serving low income families, and groups providing public assistance including clothing and food. Private foundations offering grant money to the under served or raising money to give to charities also qualify. If you sell used clothing or bakery rejects you probably would not qualify unless you give the proceeds to charity.

File for incorporation with your state authority, usually the Secretary of State, or change the status of your corporation to non-profit. Non-profit organizations have to be incorporated. You do not necessarily have to file in your own state. Some states offer less expensive incorporation options. If you do not already have a tax identification number, contact the IRS to obtain one. You will need bylaws showing your exempt purpose, such as charitable, educational or other purpose.

Create a business plan with your goals and a detailed description showing how your business has benefited the public in the past and why you believe it will better serve the public with non-profit status. Use this information to write a narrative description of your activities describing your past, present and planned activities, which will be included with your application.

Visit the IRS website or call them and obtain Form 1023 "Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code." This is a long document of more than 25 pages. Information to be provided will include the compensation of all officers, directors, trustees, employees and subcontractors and their relationship to you, the narrative description of your activities, the purpose of the business, bylaws, and the company's financial information.

Complete and file Form 990 every year instead of a tax return to show that your business still qualifies for non-profit status. Be aware that you will be exempt from federal income tax but you may still have to pay other taxes including payroll tax and sales tax.

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