Small Business Payroll: Your Complete Year-End Payroll Guide

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Why You Should Consider A Self-Ordering Kiosk For Your Restaurant (Plus The 5 Best Kiosk POS Systems & How You Can Afford Them)

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Find The Next Grant For Your Nonprofit Through One Of These 7 Resources

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Simplify Your Small Business’s Year-End Accounting With These 9 Easy Tips

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Accounting 101: Understanding Small Business Accounting

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The Step-By-Step Guide To Registering Your 501(c)(3) Nonprofit Organization

The 8 Steps You Need To Take To Get Started

The process to execute some of these steps varies somewhat from state to state. For example, in some states, you will need to apply for both federal and state tax-exempt status. But wherever you live, you will need to follow all of the below 8 steps.

1. Select A Name

Though you may have a working name for your organization, to make your nonprofit official, you will have to make sure that name is available and hasn’t already been trademarked. After you choose your name, check with your Secretary of State office as well as the U.S. Department of Commerce website to ensure that it is available. You can normally pay a nominal fee to reserve your name until you file your articles of incorporation.

2. Form Your Board Of Directors

Generally, you should form your board of directors before incorporating. Some, but not all states require that you list your board members’ names in the incorporation documents. You’ll also need to list at least three directors when you file for your 501(c)(3) tax-exempt status. These members should ideally be unrelated (by blood or marriage).  

3. File Articles Of Incorporation

This is the documentation that forms an official corporation for your nonprofit and will be filed with your secretary of state. It includes information such as your organization’s name, location, board of directors, and purpose (what your nonprofit is being created to do/provide). Although incorporating your nonprofit does not make it tax-exempt, you will need to include certain language in the articles of incorporation for when you apply for tax-exempt status later—your state’s nonprofit formation packet should include the required information.

Some states also require you to publish a notice of incorporation with your local newspaper.

4. Write Bylaws

After your articles of incorporation have been approved, you can write your bylaws. These are your nonprofit’s internal rules and guidelines for procedures such as holding issues, voting, and electing officers. You will need to include a copy of your bylaws in your 501(c)(3) application.

5. Hold First Board Meeting

At your first board meeting, you will make your articles of incorporation part of the official record, adopt your bylaws, and elect officers. Someone will need to take minutes, which you will keep on file. It’s recommended that you hold this initial board meeting before you file for federal tax-exempt status. In a later meeting, you can record the receipt of federal and state tax exemptions.

6. File For EIN

The final thing you need to do before filing for your 501(c)(3) status is to apply for an Employer Identification Number (EIN). You need to do this even if you don’t have employees yet, as it is required by the IRS to obtain your tax-exempt status. The IRS uses your EIN to track your organization’s financial activities. You’ll also need an EIN later on when you open a business bank account and hire employees.

To obtain an EIN, file Form SS-4 with the IRS.

7. File For Tax-Exempt Status

After you have your directors, incorporated status, bylaws, and EIN, it’s finally time to file for your federal tax-exempt status with the IRS. For nonprofits in most states, you only need to do this at the federal level, but some states require you to file for tax-exempt status at the state level too. For example, nonprofits in California must also apply for tax exemption with the California Franchise Tax Board after obtaining tax-exempt status from the IRS.

To apply for your federal tax-exempt status under section 501(c)(3) of the Internal Revenue Code, you will need to file Form 1023 with the IRS. If your organization has gross receipts of less than $50K and less than $250K in assets, you can file the 3-page 1023-EZ application (vs. the 26-page standard 1023).

Some information you’ll need to include in your 1023 application:

  • Your budget, including any balance sheets or other financial information
  • The names of your directors
  • Copy of your articles of incorporation
  • Copy of your bylaws
  • Dissolution clause (usually included in articles of incorporation or bylaws)
  • Conflict of interest clause (usually included in articles of incorporation or bylaws)
  • Statement of exempt purpose (usually included in articles of incorporation or bylaws)

In order to ensure that your application meets all state and federal requirements, it’s a good idea to consult with a lawyer or someone familiar with tax-exempt law. Including attachments, a 501(c)(3) application package can easily exceed 50 pages.

Note that even after your organization receives its letter of determination from the IRS with its tax-exempt status, each year you will have to submit Form 990 in order to maintain your 501(c)(3) status. This document provides financial information about your organization to both the IRS and to the public.

8. Obtain Business Licenses & Permits

Once you have your tax-exempt status, you’re almost ready to start raising funds. But first, you’ll need to make sure you’re in compliance with all business licenses and permits applicable to your state and your organization’s activities. For example, you may need a sales permit or a zoning permit. Check with your local department of consumer affairs to find out what kind of licenses and permits you need to operate as a charitable organization in your particular state. Some cities may require a city business permit as well.

Registering As A Nonprofit: FAQs

How long does it take to register a nonprofit?

The IRS estimates it will take 100 hours to fill out Form 1023. The application process typically takes between 3-6 months, though it could take as long as a year, depending on whether the IRS has follow-up questions and how quickly you provide the answers.

How much does registering a nonprofit cost?

To file for 501(c)(3) status, you will pay either $600 to file Form 1023, or $275 to file Form 1023-EZ.

The costs of incorporating and obtaining the necessary permits to operate as a nonprofit vary from state to state; however, they usually do not exceed $100-$200.

Is the registration process different in each state?

Yes, somewhat. Check with your state to see if you need to complete any extra steps, such as publishing your nonprofit’s articles of incorporation or filing for state-level tax exemption.

Can any organization register as a nonprofit?

No. Your organization must meet the IRS’s definition of a public charity (the most common type of 501(c)(3) organization), private foundation, or private operating foundation. Be sure to read up on the IRS’ exemption requirements for 501(c)(3) organizations before you apply.

Can I register my business as a nonprofit to dodge taxes or get rich?

No. The IRS has strict regulations in place to make sure that businesses cannot use misuse their 501(c)(3) status for personal gain or to avoid paying taxes. All of your organization’s financial information, including salaries and use of income, will be closely and regularly scrutinized to look out for possible fraud and conflicts of interest. For example, if your nonprofit brings in $500K a year, you will not be able to get away with paying yourself a $200K salary.

Should I hire a lawyer to help with the registration process?

Yes, it is a good idea for first-timers to consult with a legal professional at some point to ensure compliance with all state and federal requirements, particularly when filling out the incorporation paperwork and when preparing the 501(c)(3) forms.

Final Thoughts

Whether they benefit schools, the environment, public safety, or another cause, nonprofit organizations do a lot of good in this world. But if a nonprofit is not officially registered, then it can only make a limited impact. When a charitable organization is incorporated as a nonprofit corporation and obtains a 501(c)(3) status from the IRS, the organization does not have to pay income taxes on the money it brings in, and the organization becomes eligible for other funding opportunities, including government grants and charitable crowdfunding platforms. Additionally, donors are more motivated to donate to IRS-registered nonprofits because any contributions they make to these organizations are tax-deductible.

There is some work involved in registering a nonprofit and maintaining nonprofit status, but your charity and your cause will ultimately benefit from your diligence. If you’re not sure your nonprofit qualifies for 501(c)(3) status, the IRS has information you can review on the various types of tax-exempt/nonprofit organizations, including 501(c)(3) and others. If you think maybe a nonprofit structure is not right for your organization after all, I recommend reading our article on the different types of business structures.

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How To Detect (And Prevent) Online Credit Card Fraud — And Why You Need A Solid Strategy To Manage Fraud For Your eCommerce Business To Succeed

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Should You Form A Business Cooperative? Consider These 9 Advantages And Disadvantages Before Getting Started

Slow Decision-Making

Have you ever tried to make a decision as a large group? It can be pretty challenging! By the time the entire group decides where to eat, you are out of your mind with hunger. The process to make big decisions as a cooperative, where everyone gets an equal vote in all company decisions, can be equally time-consuming and frustrating.

How To Form Your Co-op

The following are the main steps you need to take to form a business co-op. However, the steps to register your business as a co-op vary somewhat from state to state; check with your state’s Secretary of State or State Corporation Commissioner for more information regarding your state’s specific co-op laws.

1. File Articles of Incorporation

The articles of incorporation is a document that makes your co-op an official business. This document includes your company’s name, location, purpose, financial structure, and the names of your charter members (incorporators/founders). Your incorporators must file the articles of incorporation with your state business entity registration office.

2. Obtain Business Permits & Licenses

You will need to obtain all local, state, and federal permits and licenses before you can operate as a legal business. These requirements will vary based on your industry and location.

3. Create Bylaws

Once your articles of incorporation have been approved by the state, you can write your bylaws. These are all of the rules and procedures for your cooperative and include membership requirements and duties, as well as general operational procedures for your co-op. Your bylaws must comply with state law, so you may need to consult with an attorney at this time if you haven’t already.

4. Hold Charter Meeting

During this meeting, charter members will adopt the bylaws and elect a board of directors (if the board wasn’t already established in the articles of incorporation).

5. Recruit More Members

To make your co-op a success, it needs to grow its membership. These are the employees and co-owners of your company who will supply the capital and labor. The application members use to join the company needs to include names and signatures from the board of directors, as well as a description of the member rights and benefits.

6. File With The IRS

Even though you are exempt from certain taxes as a cooperative, you will still need to file with the IRS (before the end of your fiscal tax year) to validate your organization’s tax-exempt status. In particular, most cooperatives will need to file Form 1120-C to report income, gains, losses, deductions, credits, and to determine your income tax liability. Any cooperative with employees needs need an Employer Identification Number (EIN) to file taxes, so be sure to sign up for one before tax-time if you haven’t already.

7. Obtain Additional Financing

Depending on your financial needs, you may need to obtain additional financing at some point, especially if contributions from co-op members are not sufficient to cover all your initial startup expenses. As mentioned, crowdfunding and startup business grants are a couple of potential ways co-op startups get capital, and certain online lenders might be willing to extend you a startup loan as well.

Note that if you are converting an established company to a co-op, this process will look different. In addition to incorporating as a cooperative, writing bylaws, etc., you will also need to buy out the original owners/founders and then redistribute that money to the co-op.

Final Thoughts

A business cooperative can be the perfect business structure for certain organizations, particularly those with a democratic business ethos. A strong corporate culture and reduced costs are just two of the many benefits that cooperative businesses enjoy. However, co-ops are also limited in certain ways, and are not appropriate for every business type.

Don’t think a co-op is right for you? Take a look at our business structures explainer to learn about other business structures and their pros and cons.

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What Are Payroll Taxes? And How Do You Calculate Them?

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Your Step-By-Step Guide To Starting A Successful House Flipping Business

If you own your own home, you could use a home equity loan or home equity line of credit (HELOC) to fund your flips. If you have equity in your home, a low debt-to-income ratio, and a good personal credit score, you could qualify for one of those options, which come with low rates and favorable terms. If you have a retirement account, you could also consider a Rollovers as Business Startups plan (ROBS), which allows you to leverage your retirement funds without penalties.

For unexpected expenses or operational costs, consider applying for a business credit card. You can also get creative by bringing on a business partner or launching a crowdfunding campaign. Whether you’re new to the game, have some experience, or have credit challenges, there are options available to you. You just have to connect with lenders to find them.

No matter what type of funding you seek for your business, there are a few things to keep in mind. First, understand that borrowers with the highest credit scores typically qualify for more options that are also more affordable. So, one of the first things you want to do prior to submitting your application is pull your free credit score, access your credit report, and dispute any errors. You can also take steps to boost your credit score.

Once you apply for funding, make sure that you fully understand the terms, fees, and interest rates associated with your financial product. Don’t be afraid to shop around your options if you aren’t happy with a lender’s offer.

If you do secure funding, make sure to always pay as agreed and meet all conditions put in place by the lender. By doing so, you can not only raise your credit score, but you can also establish lasting relationships with lenders and investors that will serve you well as you build your business.

Unsure of which funding option to choose? Learn more about the best loan products for your house flipping business.

#4 Connect With Contractors & Other Professionals

In addition to lenders, you’ll also need to establish relationships with contractors and other professionals that will help contribute to the success of your business. Even if you plan to get hands-on with the renovation of your properties, you’ll still need a team of contractors to help with the work, particularly when distressed properties are involved. Not only will a contractor complete the work required to flip a house for profit, but a good contractor will know about licenses, permits, and other local requirements. You can also discuss your timelines and budgets with your contractors so you don’t have extended timelines or unnecessary expenses cutting into your profits.

When seeking contractors, don’t be afraid to ask for references or a portfolio. Also, don’t forget to shop around your options to find a reputable contractor that works with your budget. If you’re new to the industry, developing a working relationship with a reputable contractor can even help you score hard money loans from investors.

Another professional that you need on your team is a real estate agent. If you opt not to get your real estate license, a realtor has access to resources that will be essential for your business. This includes access to properties on the multiple listing service (MLS), as well as prospective homeowners that could be interested in purchasing your properties. A realtor can also help market and sell your renovated properties.

Someone else to keep on your speed dial is an attorney, and not just any attorney — one that specializes in real estate. There are some legalities of flipping houses that you don’t want to overlook, so it’s wise to have a real estate attorney on your team. An attorney is especially critical during your first flip. Overlooking important legal details, errors in contracts, and other issues could not only derail your deal but could also damage your reputation in the industry.

Over time, there may be additional professionals you’d like to have in your corner, such as an accountant and investors. For now, though, focus on finding the right contractors, attorneys, and realtors for your house flipping team.

#5 Understand The Importance Of Market Research

Knowing your market is key to maximizing profits as a house flipper. Buying the wrong property in the wrong neighborhood could result in a low profit that’s not worth the time invested in the property, or worse, a loss.

Working with a realtor can really help when it comes to knowing your market. Realtors have the inside scoop on the hottest neighborhoods, information on recently sold properties, and other data that can help you find the right homes for flipping. You can also take advantage of the vast amount of information you can find on the internet, where you can do a lot of your market research for free.

With market research, you’ll soon learn where buyers are buying, how much they’re paying, and what they’re looking for. While there are some variances depending on where you live, there are a few markets that are always hot, including neighborhoods with great schools, neighborhoods with homes that are at least 20 years old, areas with low crime rates, and houses that are close to amenities. Once you understand the market, you can begin further narrowing down the areas you wish to target and begin preparing for the next step: buying and flipping a property!

#6 Buy, Renovate, & Sell Your First Property

You’ve set up your business. You’ve connected with a team of reputable professionals. You’ve found and secured funding, or are at least aware of a few potential options. You know your market, you’ve researched recent selling prices, and there are properties on your radar. Now, it’s time to pick a property, buy it for the right price, renovate it, and then flip it for a profit.

This is where your team will really come in handy. For instance, your realtor may have information on properties before they hit the market, giving you an early edge over other flippers and buyers. Your attorney can help with the paperwork and walk you through the steps of purchasing and flipping a house — think, walk-throughs, insurance requirements, and negotiating contracts.

Once you’ve purchased the property, it’s time to start your renovations. Work through your budget and timeline with your contractors, and put the research you did earlier to good use. Look at comparable properties when determining what renovations need to be completed. For example, if recently sold houses in the same neighborhood have updated granite counter tops, add granite counter tops to your “to-do” list. Finally, be prepared for the unexpected. Deadlines may be missed, or there may be additional expenses that weren’t accounted for in the budget. It happens to even the most experienced flippers — the key is learning to roll with the punches.

After the renovations are complete, it’s time to put your house on the market. Your realtor will be a valuable asset by listing the property and helping you market it to buyers. Then, once a buyer is interested, work with your attorney to make sure all of the i’s are dotted and t’s are crossed. Once the property is sold, any amount that exceeds what you’ve put into the house is pure profit.

Final Thoughts

Let’s make one thing clear: flipping houses isn’t easy, no matter how simple it looks on TV. But if you’re ready to put in the work, you’ll find that house flipping is extremely rewarding. As you flip your first few houses and begin to find your groove, you’ll find that the process gets easier, just as it does with any other business.

You don’t have to go at it completely alone, though. We have a load of great small business resources right here, so check them out and get ready to build your business. Good luck!

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