Donations & §25F receipts
Collect cash gifts, verify donor identity, and generate a compliant per-donor §25F receipt for every contribution automatically.
Starting an SGO
How to start an SGO and accept the EFTC.
The federal Education Freedom Tax Credit (§25F) lets donors claim up to $1,700 for giving to a Scholarship Granting Organization, starting January 1, 2027. Here's the plain-English path from zero nonprofit experience to a working SGO — and where a platform takes the operational weight off your hands.
The big picture
Starting an SGO is really two jobs.
One layer is federal and the same in every state: becoming a 501(c)(3) public charity that meets the §25F operating rules. You can do all of it today.
The other layer is your state’s: the credit only works if your state opts in and puts your organization on a list it sends to Treasury. Build the federal foundation now so you’re ready the moment your state opens its process.
The federal path
Six steps you can take now.
Government fees are the firm numbers below; professional help is optional. None of these steps depend on your state’s decision.
1
Incorporate the nonprofit
File articles of incorporation with your state (~$25–$125), name a registered agent, and seat at least three independent board members. Adopt bylaws and a conflict-of-interest policy.
2
Get an EIN
Your federal tax ID, free and immediate from the IRS. You need it to open a bank account and apply for tax exemption.
3
Apply for 501(c)(3) status
File Form 1023 ($600, ~3–6 months) or, if you qualify, Form 1023-EZ ($275, ~2–4 weeks). Most real SGOs exceed the EZ limits and file the full 1023. You must be a public charity, not a private foundation.
4
Open a separate bank account
§25F requires SGOs to keep qualified contributions in a separate account, with no co-mingling. Open a dedicated nonprofit account and segregate scholarship funds from operating funds from day one.
5
Register to fundraise
Most states require charitable-solicitation registration before you ask residents for donations. Register where you'll solicit, and renew annually.
6
Get on your state's list
The state — not you — files the §25F advance election and submits a list of qualifying SGOs to Treasury. This process is still being finalized; existing state STO/SFO certification programs preview what your state will require.
The §25F bar
What makes you a qualifying SGO.
These operating rules come straight from the statute and apply everywhere. Design your organization around them from the start.
- Serve 10 or more students who do not all attend the same school.
- Spend at least 90% of income on scholarships (a hard ~10% admin cap).
- Serve households at or below 300% of area median gross income, verified.
- Pay only qualified K–12 education expenses (the Coverdell §530(b)(3) list).
- Honor renewal-then-sibling award priority; never earmark gifts to a named child.
- Never award scholarships to insiders (no self-dealing).
Want the complete, start-from-nothing walkthrough?
Our sister site has the full guide — every step with costs, timelines, the separate-account rule, the state-list process, and a copy-paste checklist. Read: How to start an SGO.
Where the platform fits
The 90/10 cap is the catch — software is how you stay under it.
Steps 1–6 stand up the organization. Everything after that — taking donations, verifying eligibility, awarding, disbursing, and reporting — has to happen inside a 10% administrative budget. Done by hand, that work breaks the cap. SGO Software runs it for you:
Income verification
Run the 300%-AMGI eligibility check against household income and family size — the document-heavy work that otherwise eats your 10% budget.
Award engine
Enforce the renewal/sibling priority order, apply your criteria, and issue award letters without breaking the rules by hand.
Separate-account accounting
Keep qualified contributions walled off and continuously prove the 90% spending test on the right base.
Disbursement tracking
Fund schools and providers with a per-student ledger that reconciles, including mid-year transfers.
State & federal reporting
Produce the audit trail and the state and §25F reports from one ledger, instead of rebuilding them every cycle.
Starting one? Let’s talk.
We’ll walk your setup with you and show you exactly where the platform takes over.
Preparing your SGO for January 2027?
See the platform that runs donor collection, family applications, school disbursement, and §25F reporting end to end. Talk to us early.