When business owners want to give back to their community and support their philanthropic values, they sometimes ask me how much it costs to start a tax-deductible charitable donation. This article summarizes the costs (as of 2020) to creating your own 501(c)(3) nonprofit organization.
What are the costs to set up a 501(c)(3) nonprofit organization?
The typical investment to set up a 501(c)(3) nonprofit organization involves startup costs and annual costs:
First Year Costs
The federal application fee (filing fee for IRS Form 1023) is generally under $1,000. You will also have professional fees to help you:
- $2,000 – $4,000 in attorney and CPA fees
- 40 hours of your time working with the attorney and CPA
Each year, you will need to file financial reports with the government such as IRS Form 990. The cost for a CPA to help you is usually:
- $1,000 in CPA fees
These estimates are only the time and costs associated with the legal requirements to keep the nonprofit in existence. This doesn’t count the time and money required to find board members, run the organization, etc.
A Cheaper Option: Donor-Advised Fund
If you are just looking for a way to make tax-deductible donations to charitable causes, but you aren’t sure when or which charities to donate to, you might consider using a donor-advised fund in a foundation. With a donor-advised fund, you can donate money and get a tax deduction in that year. Your account will grow over time as you make donations each year. Then when you are ready, you can direct (“advise”) the foundation regarding which charity you want the money to be donated to.
Typically, a donor-advised fund involves a small annual fee (often 1%), but the money is usually invested and earning interest or dividends, which offset the annual fee. Regardless of the annual fee, the benefit of an immediate tax deduction for your donation far exceeds the cost of the annual fee.
Reputable Foundations Offering Donor-Advised Fund Services
If you decide to use a donor-advised fund, your money will be safest and the rates are usually best if you pick a large, regional fund in your community. Examples of reputable foundations who offer donor-advised fund services include
If you decide you want to start a nonprofit organization, here is an article explaining the process and steps involved in setting up a 501(c)(3) nonprofit organization in Minnesota.