If you’re considering forming a nonprofit in any state, good for you! These wonderful organizations are dedicated to promoting social causes and furthering missions for the public good. For that reason, nonprofits that qualify as public charities under the Internal Revenue Code 501(c)(3) are eligible for exemption from federal corporate income tax.
But how much does it cost to start a nonprofit? The answer is, it depends. The overall cost varies greatly depending on the state where you form the organization.
In addition to the price tag, it’s also important to consider how difficult it is to form and operate a nonprofit organization in your chosen state. While some states have relatively relaxed guidelines for nonprofits, others enforce stringent regulations for these organizations.
So, which is the best state to start a nonprofit? Keep reading to learn more.
The state of Delaware is home to more than 5,500 nonprofit organizations, including more than 3,000 501(c)(3) public charities. These nonprofit organizations employ nearly 12 percent of the state’s workforce and generate upwards of $6 billion in annual revenue.
Why are so many nonprofits founded in The First State? It’s likely because Delaware is widely considered the best state to start a nonprofit. In fact, many nonprofits choose to incorporate in Delaware even if they plan to operate in a different state. (Keep in mind that if you incorporate in another state, your organization is still subject to oversight by charity officials in the state where it operates.)
When it comes to forming a nonprofit, Delaware offers easy and flexible requirements. Case in point: The Diamond State only requires one director to form a new nonprofit as compared to New York, which requires at least three directors.
To top it off, Delaware does not have a nonprofit statute, and the state doesn’t levy rigorous restrictions on a charity’s activities. On the other hand, states like New York and California impose complex statutes on nonprofits formed within their borders.
How much does it cost to start a nonprofit in the state? The fee to incorporate is only $89. Delaware charges an additional $9 for extra pages and an optional $50 to $1000 expedite fee, depending on how quickly you need a response. If you choose not to pay the expedite fee, you can expect a turnaround time of approximately three weeks.
To obtain federal tax-exempt status, you must file IRS Form 1023. The fee for this application is $275 or $600, depending on the size and nature of your nonprofit. (This amount is the same for nonprofits in every state.)
Additionally, you may have to pay a fee for the Delaware Combined Registration Application (CRA) form. The amount varies based on applicable licenses and accounts.
Considering the affordable cost combined with lenient regulations, flexible governance and simple annual reporting, it’s no wonder Delaware is renowned as the best state to start a nonprofit.
When it comes to starting a nonprofit, Arizona is a very close second to Delaware. Not only does The Grand Canyon State impose fewer regulations on nonprofits, but it also has extremely reasonable fees. That probably explains why Arizona is home to nearly 20,000 nonprofit organizations that employ more than 8 percent of the state’s workforce.
In Arizona, it costs $40 to incorporate a nonprofit with an optional $35 expedite fee. The state also charges a fee for the publishing of incorporation. Within 60 days of filing articles, you are required to publish a Notice of Incorporation three times with a newspaper in the county where your organization is located. This fee generally runs between $60 and $200, depending on the publication and length of content. (Note: This publication requirement does not apply if your nonprofit is located in Maricopa or Pima counties. If you are based in one of these two counties, you may publish your Notice at the Arizona Corporations Commission website.)
As part of state taxes, Arizona also charges $12 per license or location. Like other states, to obtain federal tax-exempt status, you must file IRS Form 1023. This costs $275 for organizations filing Form 1023-EZ and $600 for organizations filing Form 1023.
Number three on our list is Nevada. Considered a “tax haven,” Nevada has no state income tax. This is one of the primary reasons The Silver State continues to attract hordes of businesses, including nonprofits. Nevada is home to more than 7,000 nonprofit organizations, which employ more than 2.5 percent of the state’s workforce.
Like Delaware and Arizona, Nevada is a popular state for nonprofits because it does not impose strict regulations. The state charges an incorporation fee of only $50 to form a nonprofit. There is an optional $125 to $1000 expedite fee, depending on how quickly of a turnaround you need. (Standard processing in Nevada generally takes one week.) However, the state also charges a $50 fee to submit your Nevada Initial List of Officers at the same time you submit your articles of incorporation. If you are a non-exempt organization, you may also need to purchase a Nevada business license for an additional $200.
With more than 30,800 nonprofit organizations, including nearly 19,000 public charities, Wisconsin is another hot state for nonprofits. This is likely because The Badger State boasts extremely low fees when it comes to starting a nonprofit. Wisconsin only charges $35 for incorporation along with a $20 fee for state business tax registration. The state also charges a $15 charitable registration fee for non-exempt charities. (Exempt organizations do not have to pay this $15 fee.)
While Wisconsin offers relatively relaxed regulations, nonprofits in the state often struggle with exceedingly complex reporting requirements. For this reason, the state falls to number four on our list.
Everything is bigger in Texas, and that includes the nonprofit sector. There are nearly 93,000 nonprofit organizations across The Lonestar State, including more than 65,000 public charities. These nonprofits employ more than 5 percent of the Texan workforce and pay $16 billion in annual wages.
Why do so many nonprofits choose to incorporate in Texas? A major draw is the state’s flourishing business scene. Consistently ranked as the best state to start a new business, Texas has seen unprecedented small business growth in recent years—and that includes nonprofits.
Even better, it is extremely affordable to start a nonprofit in Texas. The Texas Secretary of State charges a $25 fee to file the nonprofit certificate of formation (Form 202) by fax, mail, in person or online. Plus, nonprofit organizations are not required to obtain a state business license.
However, nonprofits in Texas do face somewhat strict regulations and must submit annual filings to the state by specific deadlines. Additionally, if you choose a Board of Directors to manage your nonprofit, you must have at least three directors.
New York is by far one of the most difficult states to start a nonprofit. It is also one of the most heavily regulated states when it comes to operating a charitable organization.
New York's Department of State, Division of Corporations charges a $75 filing fee for nonprofit Articles of Incorporation, with an optional $25 to $150 expedite fee. Additionally, The Certificate of Assumed Name fee costs $25. Another $25 is charged by the county where the assumed name will be used. This additional fee is even higher in New York, Queens, Bronx, and Richmond counties, where it costs $100.
The Empire State also imposes specific statutes that govern nonprofits. For example, in New York, a nonprofit must obtain permission to merge, sell its assets, or dissolve. New York’s requirements for a nonprofit’s internal governance can be extremely convoluted, including audit requirements, restrictions on who can serve as chair of the board, and mandatory procedures for managing conflicts of interest. To make matters worse, most of these requirements apply to all nonprofits, no matter how large or small. Obviously, this can be challenging for smaller nonprofits with limited budgets.
California is the second most difficult state to start and run a nonprofit. How much does it cost to start a nonprofit in California? The California Attorney General's office requires a fee of $30 to file non-profit Articles of Incorporation by mail or $45 in person. There is an optional $250 to $500 preclearance service fee and an optional $350 to $500 expedite fee. The California Secretary of State also $25 to file Form SI-100 for charitable registration.
Like in New York, California nonprofits are tightly regulated with exceedingly complex nonprofit statutes. The Golden State has specific statutory regimes that govern nonprofits, and charitable organizations require permission from them to merge, sell assets or dissolve.
No matter where you choose to start your nonprofit, don’t go at it alone! Turn to the experts at Swyft Filings. When you work with us, forming a nonprofit is quick, painless and easy. With our user-friendly, affordable filing process, you can start your nonprofit online in less than 10 minutes.
Not only will we protect your personal assets from liabilities, but our professionals will prepare and file all required documents in any state of your choice.
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