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Knowledge Base

Q:
Can I get funding for my nonprofit while I am in the process of incorporating or getting tax-exempt status?
A:

Technically, yes. However, your initial support probably will not come from foundation grants since most institutional funders generally require proof of 501(c)(3) status and prefer to support organizations with a proven track record of fiscal responsibility and programming successes.

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Most of your startup funding will likely come from your nonprofit's founders, board members, volunteers, community members, or other interested individuals. Be aware that any contributions you collect prior to receiving tax-exempt status may be considered personal income and therefore subject to taxation.

State agencies, like the secretary of state or the attorney general’s office, generally require organizations to register before soliciting charitable contributions, and will impose fines on unregistered fundraisers. Check their web sites for guidelines and registration information. Find your state’s charity registration office»

You will therefore need to think creatively about how to finance the initial stages of your organization’s growth. Here are a few ideas:

  • Create a list of family, friends, businesses, and other potential supporters who might be interested in your organization’s mission, and think of ways to get them involved.
  • Investigate fiscal sponsorship.
  • Consider bank loans or other financing options.
  • Identify types of support other than money that might assist your startup venture. In-kind gifts, such as free services, space, equipment, and other non-financial donations, can come from local businesses, professionals (i.e., pro bono legal or accounting help), or other community entities.
Are contributions tax-deductible?

If your charity does not have 501(c)(3) status, you should inform donors that their contributions are not tax-deductible. Be aware that some potential donors may not be comfortable giving money to an organization that is not officially exempt.

You should also inform donors if your 501(c)(3) status is pending. Once you receive your exempt status, donations received while your application was pending may be treated as tax-deductible contributions retroactive to the date of your organization's formation. However, if your application is not approved, contributions would not be considered tax-deductible.

Fiscal sponsorship

If you can locate a nonprofit that will serve as your project's fiscal sponsor, this arrangement would enable you to apply for grants and solicit tax-deductible charitable contributions under your sponsor’s exempt status. Learn more with our FAQ What is fiscal sponsorship? How do I find a fiscal sponsor?

Please see our related Knowledge Base articles:

- What is social enterprise?
- What is crowdfunding?
- What is a giving circle?
- Where can I find information on online fundraising?
- What is the board's role in fundraising?
- Knowledge Base articles on individual donors

More articles about starting a nonprofit»

Selected resources below may also be helpful.

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Books and Articles

Check title availability at our libraries and Funding Information Network locations or your local libraries.

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