A non profit organization is a group that exists for purposes other than making money. It can be a casual neighborhood group that meets to knit scarves for veterans, a formal organization that's been established as a separate legal entity, or a group that's been granted tax exempt status by the IRS.

If you become a non profit organization who has received tax exempt status from the IRS, you'll be able to solicit donations that are tax deductible to the donor. This may make it easier to raise funds. You will also be exempt from income taxes on money that you earn in the course of your operations, making it easier to keep more of the money you raise. Which type of non profit you create will depend on your goals and objectives. This page will give you an overview of how to become a non profit organization.

• If a group of people band together to work on a common project without the intention of making a profit, they've become a non profit organization. This could be a group of friends who meet to clean up the town beach occasionally or knit scarves for veterans, for example.

• A group that meets regularly, and collects funds, may want to establish a formal legal entity, to isolate its members from personal liability, to set up a bank account, obtain insurance, and exist beyond the tenure of the founding members. There are a variety of forms of legal entity that could be used, but if you're looking to eventually apply for tax exempt status, you should form as a corporation, a trust, a limited liability company or an association.

• Once granted tax exempt status by the IRS under section 501c3, an organization is not required to pay taxes on income generated from activities related to its stated purpose, and may receive donations that are tax deductible to the donor. There are also grants and state and federal programs which you are only eligible for if you are a non profit organization. The organization must be engaged in qualifying charitable activities, be an established legal entity, meet certain administrative requirements, and file the appropriate paperwork with the IRS in order to become a non profit corporation.

• How you form your non profit depends on how regularly you meet, how long you plan the organization to exist, whether you need liability protection for the members, and whether you want to raise money. Think carefully about your goals and objectives, so that you can select the structure that's right for you.

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The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.