If there is volunteer or charity work you are doing or would like to do — that you are enthusiastic about and that fulfills you — what about starting your own nonprofit organization?

A 501(c)3 nonprofit is a tax-deductible business that supports work to benefit society, and it is typically formed either as a registered nonprofit business, or, more formally, as a foundation.

You might be surprised to learn that leading organizations that have become the fabric of American society are organized as 501(c)3 nonprofits. This includes the YWCA, the American Red Cross, AARP, The Salvation Army, Boy Scouts of America, Girl Scouts of the USA, Easter Seals, and Planned Parenthood.

Supporters of public broadcasting, whose names scroll on your screen at the close of a show (such as The Chan Zuckerberg Initiative that Meta founder Mark Zuckerberg runs with his wife or The Ford Foundation) are also likely to be 501(c)3s.

Middle-Class People Found 501(c)3s, Too
What you might find even more surprising is that 501(c)3 organizations are far more common than you might imagine — and that it’s not just foundations or wealthier individuals who have the time or money to create them. Middle-class Americans do, in fact, form successful, thriving 501(c)3s every day.

“The biggest plus of the 501(c)3 is the tax-exempt status, which can help you save significantly on the costs of your charitable efforts,” says David Aylor, founder and CEO of David Aylor Law Offices. “By incorporating your charity, you allow your personal finances to remain 100% separate and remove yourself from personal liability implications if any issues arise.”

There is also a real sense of civic-mindedness and ownership, adds Kenneth Rubinstein, an attorney with Gallet Dreyer & Berkey, LLP who has helped numerous individuals set up 501(c)3s. “There is a big difference between writing a check for a worthy cause or volunteering your time, versus setting up a 501(c)3 of your own,” Rubinstein says. You cannot solicit contributions without this structure or always be able to deduct related expenses on your taxes, he says.

‘Adding Legitimacy’
Furthermore, “becoming an incorporated charity can add legitimacy to your cause and attract big donors, allowing you to grow your efforts even further,” Aylor adds. If you plan for your project to be long term, “incorporation and tax exemption make sense.”

Thus, if you have a passion with a charitable twist, are semi-retired, or retired with time on your hands, or if you have a cause that you would like to formalize and involve other family members in, here are some examples of various types of 501(c)3s that have been set up — plus some advice from attorneys and certified public accountants (CPAs) on how to create one.

However, to set your expectations at a realistic level, it is important to know that because there are strict Internal Revenue Service (IRS) rules on what constitutes and qualifies as a 501(c)3 nonprofit, it may be prudent to hire an attorney and/or an accountant to help you set one up.

Set-Up Costs
Hiring an attorney and/or a CPA to help you conquer the guidelines of a nonprofit typically can cost $15,000, experts say. There are also registration fees that may need to be paid to the state attorney general’s office in whatever state your nonprofit is incorporated, and these typically start at $4,000. So, for around a $20,000 start-up fee (which itself should be tax-deductible), you could create a nonprofit of your own.

Or, you can do it yourself without breaking the bank. That is what Melissa Wu did when she created Animal Matters over 24 years ago. Wu, a marketing manager with Newsmax Media Inc., uses her nonprofit to educate the public about the use and abuse of animals through various communications and direct rescue efforts. Since its inception, Wu, her husband, and the organization’s volunteers have saved hundreds of dogs, cats and farm animals from certain death in shelters, on the streets, and in cruelty cases.

Wu says that, ever since she can remember, she has been passionate about saving stray animals from unkind fates. “Nothing gives me more joy than taking an animal out of a terrible situation and placing them into a loving home,” says Wu. “When I get happy updates from adopters, I can’t stop smiling.”

When Wu, at the time only 28, began to realize how expensive her pastime was becoming, she took it upon herself to research various forms of nonprofits, which is how she learned about 501(c)3s. Since then, she has managed Animal Matters while working full time in the corporate world. Her primary goal is to educate people about animal issues and how animal parents’ behavior affects their furry friends.

‘The Work Can Swallow You Whole’
Wu’s secondary goal is to “eliminate stray animal populations.” To this end, she has spoken out in favor of animal adoption and altering.

“The work can swallow you whole,” Wu says, adding that she can remember practically every stray animal she has met and helped save over the years.

Doing good work does not have to be prohibitively expensive, Wu notes, which is how she came upon 501(c)3 rules. With no prior financial background, Wu took it upon herself to research the IRS tax code. She happily discovered that many of the expenses she incurred for her personal passion of being an animal advocate were tax deductible.

If you have the aptitude to help others, be it coaching a team, teaching high school students how to write an essay, or building homes in low-income areas, that work could potentially qualify for 501(c)3 federal tax breaks.

One memorable 501(c)3 that Rubinstein helped a client establish was for a “serious art collector,” he says. “I helped him form a charitable remainder trust into which he placed appreciated assets and the trust contributed the remainder of the funds to a family foundation, which was set up as a 501(c)3. His goal was to acquire and exhibit artwork as a cultural activity to foster appreciation of fine art,” and his nonprofit did, in fact, lend artwork to leading museums in the United States, including the Metropolitan Museum of Art.

How to Get a 501(c)3 Started
First, choose a name; second, file articles of incorporation as a trust, corporation, or association; and third, run your business according to the 501(c)3 rules. Within 27 months of the date of the organization’s incorporation, the manager of the 501(c)3 must file Form 1023 or Form 1023-EZ with the IRS.

A 501(c)3 determination letter takes three to six months for the IRS to issue.

The 501(c)3 itself will be exempt from paying federal income and unemployment taxes, and whatever the patron donates to the organization, they can claim as a tax deduction.

A 501(c)3 can also accept donations, and being a nonprofit that must conform to strict IRS rules, this encourages more people to give their money to one whose values they support, says Shai Goldstein, who has set up and run a number of these types of nonprofits in the past six years. Currently, Goldstein, whose passion is educating people on how to understand and manage their finances, is in the process of setting up a financial education nonprofit that will offer 10-week curriculum modules to grammar and high schools.

Like Wu, Goldstein says setting up a 501(c)3 does not have to be prohibitively expensive. For a $600 fee through his A2ZFilings.com website, he says he can help a person set it all up.

Providing yet a further fine point as to whether you might want to create a foundation or a nonprofit company, Magda Szabo, a partner with accounting firm Wagner, Ferber, Fine & Ackerman and also a licensed attorney, says if you are leaning toward creating a foundation, you might want to consider a charitable lead trust.

“I recommend these to my clients, who tend to be high net-worth, rather than a foundation,” she says, “because with the former, you can take current deductions for future contributions, and any residual amount can go to you or to someone else, such as your grandchildren, whereas if you opt for a foundation, you get the deductions but the money stays in the foundation.”

What Qualifies
In order to qualify, the entity must be a nonprofit in one of three possible areas, according to Investopedia: charitable organizations; churches and religious organizations; and private foundations. Its work can be charitable, religious, educational, scientific, or literary. The nonprofit could also test for public safety, foster national or international amateur sports competitions, or, like Animal Matters, work to prevent cruelty to children or animals.

The IRS breaks down charitable work even further as including: relief of the poor or underprivileged; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening neighborhood tensions; and even combating juvenile delinquency, among other issues.

Another important factor to consider when weighing whether or not you want to create a 501(c)3 is that the IRS tax forms you file will be publicly available, Szabo says. “The name ‘foundation’ does not necessarily mean you are a ‘private foundation,’” she points out.

Aside from the start-up costs, the manager of the nonprofit needs to be diligent about filing each year with the IRS, she adds, although other experts say that after filing once, additional filing years should become rote. Plus, the IRS offers Form 990-EZ.

In its simplest form, a 501(c)3 can be run without any employees. However, if it has employees, they must be paid fair market value wages. None of the net earnings of the organization can line the pockets of any private shareholder or individual. On that, the IRS is very strict.

“All earnings must be used solely for the advancement of its charitable cause,” according to Investopedia. “A 501(c)3 could be the lifelong dream of its founder. However, once established as a 501(c)3, it no longer belongs to its founder. Rather, it is a mission-oriented organization, belonging to the public [and] it must operate . . . with full transparency . . . within the confines of the law.”

The bottom line, Szabo says, is that setting up a nonprofit is best suited for those who are “focused on getting something to someone in need, at a lower cost” to their own finances.

As to whether or not the time and money that Wu has devoted to Animal Matters has been worth it, she says unequivocally, “Yes, 100%! Creating and maintaining Animal Matters has been worth every tear and penny. I’d do it all over again.”


501(c)3 Pros and Cons Checklist

Pros
* Exempt from federal taxes
* Contributions are tax deductible
* Eligible for government and private grants

Cons
* Does not belong to those who created it
* Restricted to specific operations to receive tax exemptions
* Financial information is accessible by the public