If you have a cause you are passionate about and want to positively impact your community, starting a nonprofit organization can be a great way to achieve your goals. In Tennessee, creating a nonprofit can seem daunting at first, but with the proper guidance and resources, it can be a straightforward and rewarding experience.
Kingsport CPA, PC, has served local Tri-Cities nonprofits and businesses since 1999. We are a trusted partner with many area non-profit organizations, handling their nonprofit accounting tasks. Setting up a new nonprofit in TN requires careful adherence to the steps necessary. Our team can provide meticulous guidance and counsel to ensure your nonprofit launches successfully.
What is a Non-Profit Organization?
Investopedia defines a nonprofit organization as “a business that has been granted tax-exempt status by the Internal Revenue Service (IRS) because it furthers a social cause and provides a public benefit.”
The main factor defining nonprofits for most people is their tax-exempt status. However, numerous tax-exempt classifications exist, and many do not qualify as a nonprofit. The one unifying characteristic of all nonprofits is that they do not pay out profits or dividends to individuals or shareholders.
According to the National Council of Nonprofits, “America’s 1.3 million charitable nonprofits feed, heal, shelter, educate, inspire, enlighten, and nurture people of every age, gender, race, and socioeconomic status, from coast to coast, border to border, and beyond. They foster civic engagement and leadership, drive economic growth, and strengthen the fabric of our communities.”
The most common nonprofit organizations include churches, public schools, public charities, public clinics, and arts organizations.
Steps to Starting a TN Nonprofit
Here are the steps you need to follow to start a nonprofit in Tennessee:
Step 1: Choose a Name for Your Nonprofit
The first step in starting a nonprofit in Tennessee is to choose a name for your organization. The name you choose should be unique and not already used by another state nonprofit. You can search for available names on the Tennessee Secretary of State website.
Step 2: Draft and File Your Articles of Incorporation
The next step is to draft and file your articles of incorporation with the Tennessee Secretary of State. This document outlines the basic information about your nonprofit, including its name, purpose, and structure. You will also need to include the names and addresses of your initial board of directors.
Step 3: Apply for an EIN and Register for State Taxes
Once your articles of incorporation are approved, you must apply for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS). You must also register for state taxes with the Tennessee Department of Revenue.
Step 4: Draft and Adopt Bylaws
Your nonprofit’s bylaws govern how your organization will be run. They should cover topics such as the roles and responsibilities of the board of directors, how meetings will be conducted, and how decisions will be made. Once your bylaws are drafted, they must be adopted by your board of directors.
Step 5: Apply for Tax-Exempt Status
You must file Form 1023 or 1023-EZ with the IRS to receive tax-exempt status. This application requires detailed information about your nonprofit’s activities, finances, and governance structure. Once your application is approved, you will receive a letter from the IRS confirming your tax-exempt status.
Step 6: Register with the Tennessee Secretary of State
In Tennessee, nonprofits must register with the Secretary of State’s office. You must file an annual report and pay a filing fee to maintain your status as a nonprofit in good standing.
Step 7: Report Beneficial Ownership Information to FinCEN
The Corporate Transparency Act requires many entities to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) beginning January 1, 2024. Nonprofits without 501(c) tax exemptions formed before that date must submit their BOI before January 1, 2025. After January 1, 2025, new nonprofits must submit the required information within 30 days of formation. Once 501(c) tax exemption is granted, the organization may claim an exemption from BOI reporting requirements in an updated FinCEN filing.
Tri-Cities Nonprofit Accounting Services
Starting a nonprofit in Tennessee can be a complex process, but with the proper guidance and resources, it can be a rewarding experience. The TN Secretary of State’s Office provides a free downloadable Guidebook for Tennessee Nonprofits to help you get started. Kingsport CPA, PC, can also help you with accounting, tax-exempt status, and other critical aspects of forming a TN nonprofit. Contact us today so we can establish a nonprofit to positively impact our community and beyond.
