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Nonprofit vs LLC: which one fits?

An LLC is built to earn money for its owners. A nonprofit is built for a mission, has no owners and can apply to the IRS for 501(c)(3) tax exemption, so donors can generally deduct their gifts. Here is how they compare, what each costs to form, and how the 501(c)(3) process works.

By FormCost editorial team · Last reviewed October 28, 2026 · How we check sources

What does a nonprofit cost to start?State and IRS formation costs, all 50 states + DC What does an LLC cost?Filing fees and yearly costs by state

Side-by-side comparison

LLCNonprofit with 501(c)(3) status
PurposeMake money for its ownersA charitable, educational, religious or similar purpose (IRS)
Who owns itIts members (owners)No owners; run by a board of directors
ProfitsBelong to the ownersMust stay in the organization; none may benefit private individuals (IRS)
Federal income taxPass-through by default; owners pay income tax and 15.3% self-employment tax (IRS, IRS)Exempt on mission income once the IRS recognizes 501(c)(3) status
DonationsNot tax-deductible for donorsGenerally tax-deductible for donors
GrantsFew foundations or government grantsEligible for most foundation and many government grants
FormationState articles of organizationState articles of incorporation, then IRS Form 1023-EZ ($275) or 1023 ($600) (IRS)
Yearly filingsState report; profit on owners’ returnsState report, charity registration renewal in most states, and IRS Form 990-N, 990-EZ or 990 (IRS)
Political activityAllowedNo campaigning for or against candidates (IRS)
If it closesOwners keep what is leftRemaining assets must go to another exempt purpose

Federal rules for 2026. State fees vary: see nonprofit cost by state and LLC cost by state.

LLC

Pros

  • You own it and keep the profit
  • Simple to form and run
  • No board or public filings about pay
  • Can sell the business later

Cons

  • Profit taxed to owners, plus self-employment tax
  • Donations aren't tax-deductible
  • Few grants available

Nonprofit (501(c)(3))

Pros

  • Exempt from federal income tax on mission income
  • Donations generally tax-deductible
  • Access to grants and volunteer goodwill

Cons

  • No owners: you can't keep or sell the profits
  • IRS application and yearly Form 990
  • Charity registration in most states
  • No campaigning for political candidates

The 501(c)(3) process, step by step

  1. Incorporate with your state. File nonprofit articles of incorporation. To qualify for 501(c)(3), the articles need a purpose clause and a clause sending remaining assets to another exempt purpose if you close (IRS: exemption requirements). State filing fees: nonprofit cost by state.
  2. Get an EIN. Free from the IRS (IRS: get an EIN).
  3. Adopt bylaws and a conflict-of-interest policy, and hold a first board meeting. Form 1023 asks about both.
  4. Apply to the IRS. File Form 1023-EZ ($275) or Form 1023 ($600) online (IRS user fees, IRS: About Form 1023). If you file Form 1023 more than 27 months after you incorporate, the IRS asks extra questions (Schedule E) about when your exemption should start (Form 1023 instructions).
  5. Register with your state charity office before you ask for donations, where required, and apply for any state tax exemptions.
  6. File every year: your state report, any charity registration renewal and the IRS Form 990 that fits your size.

Form 1023-EZ or Form 1023?

Form 1023-EZ is the short online application with a $275 fee. You can generally use it if you expect gross receipts of $50,000 or less in each of the next three years, had $50,000 or less in each of the past three, and have assets of $250,000 or less; some types of organization can't use it (Form 1023-EZ instructions). Everyone else files the full Form 1023, with a $600 fee and much more detail about your plans and finances.

Your yearly Form 990

There's no IRS fee to file any of them, but the longer forms often mean paying an accountant. Missing three years in a row automatically revokes your exemption, per the IRS 990-N page.

When an LLC is the better fit

If you want to own the business, keep or reinvest profits as you choose, or sell it one day, an LLC usually fits better, even if the business does good work. A mission-driven company can also be an LLC that donates part of its profit. If you rely on donations or grants and don't need to own anything, a nonprofit is usually the better fit. The SBA's overview of structures can help you compare (SBA: Choose a business structure), and free local advisors are available through Small Business Development Centers.

Not sure? Try our which-structure quiz.

Frequently asked questions

Is a nonprofit the same as a 501(c)(3)?

No. A nonprofit is usually a state nonprofit corporation. 501(c)(3) is a federal tax exemption it applies for separately with the IRS on Form 1023 or 1023-EZ. You need both to be a tax-exempt charity whose donors can generally deduct their gifts.

How much does the IRS charge to apply for 501(c)(3) status?

$275 for Form 1023-EZ and $600 for Form 1023 (IRS user fees, Rev. Proc. 2026-5). Both are filed online.

Who can use Form 1023-EZ?

Generally organizations that expect gross receipts of $50,000 or less in each of the next three years, had $50,000 or less in each of the past three years, and have total assets of $250,000 or less. Some types of organization are excluded; the IRS eligibility worksheet in the 1023-EZ instructions decides.

Can a nonprofit pay salaries?

Yes. A nonprofit can pay reasonable compensation to staff, including founders who work for it. What it cannot do is let its earnings benefit private individuals, such as paying out profits to founders or directors.

Can an LLC be a charity?

Not usually in the way most people mean. A typical LLC owned by individuals is a for-profit business and its owners keep the profits. Donations to it are generally not tax-deductible. Most charities form a nonprofit corporation and then apply for 501(c)(3) status.

Which yearly IRS return does a nonprofit file?

Form 990-N (e-Postcard) if gross receipts are normally $50,000 or less, Form 990-EZ if receipts are under $200,000 and assets under $500,000, and the full Form 990 above that. Private foundations file Form 990-PF. There is no IRS fee to file.