Starting a nonprofit in Illinois can be a difficult, yet highly rewarding experience. Not only will you be helping out the public and contributing to the charitable community in Illinois, but you’ll discover a vibrant business experience that is professionally satisfying. Nevertheless, despite your good intentions, the Illinois Attorney General (Lisa Madigan) holds strict standards to ensure a positive, legally compliant nonprofit community. Therefore, if you’re ready to start a nonprofit this year, there are several legal issues that you need to know and implement.
As one of the leading nonprofit attorneys in the Chicago area, attorney James C. Provenza is one of the best lawyers for legal compliance and guidance for your nonprofit. With James C. Provenza & Associates at your side, you can expect top legal advice and counsel, and our law firm will help your nonprofit every step of the way.
In the meantime, we’ve included a list of 7 legal things that you should know about before starting your Illinois nonprofit.
1. Tax Exemptions for Nonprofits That Benefit the Public
It is essential to remember that nonprofits operate in a similar way as many for-profit enterprises; however, nonprofits face moral and ethical issues that do not come into play with for-profit enterprises. Therefore, as your nonprofit may be dealing with sensitive, personal, and difficult issues such as child abuse, mental health, chemical dependency, civil rights, environmental protection, and more, it’s essential to put this rule first: Above all, don’t do any harm. As the founder of a nonprofit, you must be faithful to the public good above your own personal interests.
By following the above-mentioned ideals, you’ll be able to take advantage of critical tax exemptions. The preferred tax exemption is 501(c)(3); organizations with the 501(c)(3) designation won’t pay income taxes, and donors can deduct their contributions from their taxable income.
The tax-exempt 501(c)(3) status is available to organizations who’s central purposes are:
- Charitable (helping the poor, erecting public buildings or works, eliminating discrimination, defending human and civil rights, promoting or developing the arts)
- Testing for public safety
- Preventing cruelty to children or animals.
If your nonprofit is engaging in lobbying or legislative advocacy, you can be designated as a 501(c)(4) organization. 501(c)(4) organizations can be exempt from paying tax on their income, but donors won’t be able to deduct their contributions from their taxable income.
2. Advantages of Incorporating Your Nonprofit
Incorporating your nonprofit will be an essential step, especially if you want to take advantage of tax exemptions and other benefits. For instance, some benefits of a nonprofit that has a corporate and tax-exempt status include:
- Limited liability – This means that the nonprofit directors and officers have limited liability for business debts.
- Exemptions from income tax – By satisfying the federal and Illinois requirements, your nonprofit organization can be exempt from income taxes.
- Contributions are tax deductible – Contributions from donors often serve as fundamental factors that keep a nonprofit alive. By giving donors a tax-deductible credit for their contributions, you can encourage a more vibrant contribution atmosphere for your nonprofit.
3. The Importance of a Mission Statement
For incorporation, bylaws, board governance and more, it’s important to be able to clearly define the mission that your nonprofit will pursue. In general, the mission statement should just be a couple of sentences, while clearly conveying the organization’s purpose. The mission statement should include:
- The purpose or the essence of the nonprofit
- The services provided by the nonprofit
- The target population served by the nonprofit
- The staff and/or volunteers who’ll deliver the service
- The geographic parameters of your nonprofit
- The methods that the nonprofit will take to fulfill its mission
4. Other Important Legal Documents
Nonprofits are subject to many reporting and documentation requirements. The following is a list of important legal documents, reporting requirements, and disclosure requirements that many Illinois nonprofits need to follow:
- Federal Corporate Tax Returns (Form 990)
- Illinois Secretary of State Filing Requirements
- Reports to the Illinois Attorney General
- Illinois State Tax Returns
- Copies of exemption application (IRS Form 1023)
- Copies of three most recent informational returns to the IRS
- Papers that support these documents
5. Applying For Your EIN
As a nonprofit in Illinois, you’ll need to apply for an Employer Identification Number (EIN). The IRS provides this number, and you can use your EIN to open bank accounts, hire employees, apply for business licenses, and file tax forms. You may need your EIN before incorporation and filing for your tax-exempt status.
6. Developing a Fundraising Plan
Fundraising is a complex, sophisticated endeavor that is closely watched by the state and federal governments. Nevertheless, fundraising is unavoidable for a nonprofit, and you’ll need a thorough fundraising plan so that your nonprofit can bring in income while staying compliant. In terms of legal issues, you’ll need to keep track of all of your fundraising amounts, as you may need to report the following information (the specific documents you’ll need to file depend on your nonprofit and the income brought in):
- The Illinois Charitable Organization Annual Report, Form AG990-IL, signed by the nonprofit’s president and the treasurer and/or two trustees
- IRS tax returns
- Audited financial statements
7. Keeping Your Nonprofit Compliant
Keeping your nonprofit compliant means having good organization, a thorough board of directors, extensive documentation, and staying on top of all your filing requirements. Missing your filing requirements or straying from your nonprofit’s charitable mission can result in the loss of the nonprofit’s tax-exempt status. As such, to be 100% certain that your nonprofit operates within the confines of Illinois and federal law, it is a good idea to contact an experienced and knowledgeable nonprofit attorney.
For More Legal Help, Call Chicago Nonprofit Attorney Provenza
With years of experience helping many nonprofits through the Illinois state, and especially in the Chicago area, James C. Provenza & Associates understand what it takes to keep your nonprofit open, compliant, and tax-exempt. Call our law office today at (847) 729-3939.