How Much Does It Cost to Set Up a 501(c)(3) Nonprofit?

An organization with 501(c)(3) status is recognized by the Internal Revenue Service (IRS) as exempt from federal income tax due to its charitable, religious, educational, or scientific purposes. This designation allows donors to make tax-deductible contributions, a significant factor for fundraising. The path to obtaining this status involves several costs, including mandatory government filings and other professional and operational needs.

Federal Application Filing Fees

The most direct cost in establishing a 501(c)(3) organization is the user fee paid to the IRS to process the application for recognition of exemption. This fee is not uniform and depends on which version of the application form the organization is eligible to file.

The standard application is Form 1023, “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.” The user fee for filing this form is $600, which must be paid electronically through the Pay.gov website at the time of submission. This form is required for organizations that do not meet the criteria for the streamlined version.

For smaller organizations, the IRS provides a streamlined application, Form 1023-EZ. The user fee for this online-only form is $275. Eligibility to use Form 1023-EZ is strictly defined, and an organization must complete an eligibility worksheet to determine if it qualifies. Qualifications include having projected annual gross receipts of $50,000 or less in each of the next three years and total assets with a fair market value of less than $250,000.

The eligibility worksheet contains a series of questions, and answering “yes” to any of them disqualifies an organization from using the EZ form. For example, organizations such as churches, schools, and hospitals are automatically required to file Form 1023, regardless of their financial size. The IRS also bars organizations that have previously had their tax-exempt status denied or those involved with digital assets from using the EZ form.

State-Level Formation and Registration Costs

Before applying to the IRS for tax-exempt status, an organization must first exist as a legal entity. This is accomplished by forming a nonprofit corporation at the state level, which involves its own costs. The primary expense is the state filing fee for submitting the articles of incorporation.

The cost to file articles of incorporation varies widely across the country, as each state sets its own fee schedule, making geographic location a factor in the total startup cost. These fees can range from as low as $20 to $500 or more and are paid to the secretary of state or an equivalent agency.

Many states require nonprofits to register if they intend to solicit charitable contributions from the public, a process known as charitable solicitation registration. This must be completed before any fundraising begins. The fees for this registration also differ by state and can range from under $25 to several hundred dollars, with some states basing the fee on revenue.

Failing to register for charitable solicitation can lead to penalties. Some states also require the publication of the new incorporation in a local newspaper, which incurs another minor cost.

Potential Professional Service Fees

Many new nonprofits hire legal and accounting professionals to navigate the setup process. While not a mandatory government fee, these services can prevent costly errors. The costs are highly variable and depend on the organization’s needs and the founders’ expertise.

Hiring an attorney who specializes in nonprofit law helps in drafting foundational legal documents. A lawyer ensures the articles of incorporation and bylaws contain the specific language required by the state and the IRS. Legal fees can range from a few hundred dollars for a basic review to several thousand, with flat-fee packages for the application process often falling between $2,500 and $5,000.

Securing the services of an accountant or CPA is beneficial for establishing a compliant financial system. An accountant can help set up a chart of accounts, advise on internal controls, and ensure the financial data for Form 1023 is accurate. Fees can range from hourly rates of $30 to $60 to monthly retainers starting around $150.

Common Initial Operational Expenses

Beyond government filings and professional consultations, new nonprofits face several other practical startup costs necessary to begin operations. These expenses are for the organization to function legally and professionally. One of the most common is the fee for a registered agent service.

Every incorporated entity must have a registered agent with a physical in-state address to receive legal and state correspondence. While a founder can serve in this role, many organizations hire a commercial service for reliability and privacy. The annual fee for this service ranges from about $99 to $250 per year.

Another expense is securing a mailing address. Using a home address can raise privacy concerns, so many nonprofits opt for a P.O. box or a virtual mailbox service. The cost for these services can vary, with basic plans starting as low as $10 to $20 per month.

Establishing an online presence is a standard part of launching a new organization. This involves costs for a website domain name, which is an annual fee, and website hosting services, which can range from a few dollars to over $30 per month.