In the U.S., nonprofit organizations can become tax-exempt by obtaining 501(c)(3) status. This special status, named after a section of the Internal Revenue Code, offers some great perks for nonprofits, including thrift stores.
When your nonprofit gains 501(c)(3) status, your thrift shop is exempt from federal income taxes, which means more of your profits go toward supporting your cause.
But the benefits don’t stop there: your donors and customers win, too. Donors can write off their contributions at tax time, making them more likely to give, and you can offer shoppers better prices, helping build customer loyalty.
If you are ready to unlock these benefits, here’s a simple, step-by-step guide on how to get 501(c)(3) status for your nonprofit thrift shop.
To apply for 501(c)(3) status, your nonprofit must be set up as a legal entity.
That might sound complicated, but it doesn’t have to be! The IRS simply wants to know that your organization’s mission aligns with tax-exempt purposes, like charities, private foundations, or religious, scientific, and literary work. For thrift shops, this usually means focusing on charitable efforts.
Next, your nonprofit needs to choose one of three legal forms: a trust, an association, or a corporation. Over 90% nonprofits in the U.S. opt to become corporations, and here’s why:
Take some time to weigh the benefits of each structure and choose the one that best fits your nonprofit’s goals.
Before you learn how to get 501(c)(3) status for your nonprofit, you need to pick the perfect name.
Once you’ve landed on a name, check if it’s available in your state’s business name registry. Each state has its own rules, but generally, your nonprofit’s name needs to meet a few basic guidelines:
Besides the legal requirements, it’s a good idea to choose a meaningful name that gives potential donors and funders a clear idea of your nonprofit’s mission.
After registering your nonprofit’s name, the next step is selecting your board of directors. This team will help guide your organization and ensure it’s run smoothly and ethically.
Most states have a few basic requirements for board members, such as:
Once your board is in place, it’s time to create the bylaws. These internal rules outline how your board will operate and make decisions. The bylaws ensure your nonprofit functions fairly by establishing guidelines for meetings, financial management, and resolving conflicts of interest.
When you have determined your nonprofit’s board of directors and internal rules, you need to draft the articles of incorporation. These organizing documents should include the nonprofit’s name and purpose, the names and addresses of its board of directors, the nonprofit’s Registered Agent, and the dissolution clause.
Here’s what these should look like:
When they are ready, submit these articles to your Secretary of State office or your state’s equivalent agency. You’ll need to pay filing fees when you submit these documents, which vary from state to state.
After you’ve submitted your articles of incorporation, your next step is to apply for an Employer Identification Number (EIN). This is a unique number that the IRS uses for tax purposes. With an EIN, you can open a bank account for your nonprofit, hire employees, file taxes, and apply for permits, licenses, and even 501(c)(3) status.
With your EIN ready, it’s time to learn how to get the 501(c)(3) status.
Start by filling out IRS Form 1023 or, if you qualify, the simpler Form 1023-EZ.
Form 1023 is the application for recognition of exemption under section 501 (c)(3) of the Internal Revenue Code. If your nonprofit meets the IRS’s requirements, you might be eligible to file the shorter, easier Form 1023-EZ.
After completing the form, submit it to the IRS along with the filing fee — $600 for Form 1023 or $275 for Form 1023-EZ. After your nonprofit is approved, you must file annual tax returns using Form 990 and follow the rules for staying in good standing, like not participating in political campaigns and limiting lobbying efforts.
Strong management and careful record-keeping are essential for staying compliant and running a successful nonprofit.
Depending on where your nonprofit is registered, you might have a few extra steps to follow to meet state and local regulations. Always check your local laws and make sure you comply with the following:
Also, check if your local or state government requires any permits or licenses for your nonprofit’s activities. While these aren’t directly related to getting 501(c)(3) status, they might be necessary for running a thrift shop, hosting fundraising events, or even holding raffles. A quick look into zoning permits or event licenses can help make sure your tax-exempt nonprofit runs smoothly.
Knowing how to get the 501(c)(3) status for your nonprofit will set up your thrift store for long-term success. Once you have obtained the status and all equivalent local and state licenses, your organization can receive tax exemptions and grants, and your donors can make tax-deductible donations.
Specialized point of sale (POS) software like ThriftCart can be an invaluable asset when you apply for tax-exempt status. Besides tracking donations and donor information, it can provide key metric performance reports and help you maintain accurate records.
Book a demo today and discover how ThriftCart can help your nonprofit remain tax-compliant.