Own a small business? Wondering how to organize your business? One of the most difficult licenses to obtain is a 501(c)(3) or non-profit status. It is the tax-exempt status that a lot of service, religious and youth sports organize under.
Different Types of Nonprofit Organizations
Non-profits can be:
• Charitable – helping the needy, assisting others and providing food and shelter.
• Religious – Faith based non-profit, usually include churches, mosques, synagogue or temple. The mission statement or incorporation must include that it is a religiously motivated institution.
• Scientific – many research organizations are non-profit.
• Literary and book groups.
• Testing for public safety
• Amateur sports competition, particularly youth organizations.
• Preventing cruelty to children, elderly or animals.
Non Profit Compliance
Examples of organizations that comply with non-profit status are:
• Nursing homes
• Parent-teacher associations
• Charitable hospitals
• Alumni Associations
• Schools
• Chapters of the Red Cross, Salvation Army, Boys or Girls clubs
• Churches
Public Charity VS Private Foundation
Non-profits fall under a couple of categories first being a public charity defined by the IRS as ‘not a private foundation’. Most public charities are funded by the government or general public. Public support must be wider than just a few persons or families. The second type receives funding from investments and endowments rather than the general public. A nonoperating foundation utilizes their income for grants to other non-profits. An operating foundation runs its own programs that address various charitable goals as defined by their mission statement.
Pros & Cons of Becoming a 503(c)(3)
It really takes an experienced attorney to navigate the bureaucratic minefield of non-profits. First, they must be organized and operated only for the exempt purpose. It cannot be organized to benefit any private interest. Its net earnings may not benefit any individual or shareholders. They can make a profit, but the profit can only support charitable purposes as stated in the incorporation documents or mission statement. There are restrictions in any lobbying or political activities. There numerous benefits to organizing a 501(c)(3):
• It can receive grants from private foundations and the government these are ruled by the maturity of the non-profit, leadership experience and capabilities and other restrictions.
• It is exempt from state, federal and many local taxes.
• It can be tax deductible for donors.
• It may receive some breaks with postage rates, advertising rates and other discounts.
• Since most 501(c)(3) non-profits are organized as corporations the management a protected individually under the corporate umbrella.
Downsides are that if the non-profit is dissolved all assets must go to another non-profit. To organize as a non-profit, you must incorporate at the state level and submit for non-profit status and federal statute 501(c)(3). The IRS Form 1023, 1023-EZ are used to apply for tax-exemption under 501(c)(3) and these must be filed within 27 months or incorporation. Churches, charities of annual gross receipts of $5,000 or less and subordinate organizations operating under a group exemption letter exemptions. Non-profits under 501(c)(3) need to file form 990 annually. This ensures that the corporation is operating under and complying with 501(c)(3) requirements. The 990 must be made public and if properly utilized may provide a public relations tool for promoting the organization.
Criminal Defense, Personal Injury, Business Attorneys & More in Greater Las Vegas, Nevada
This quick overview shows the restrictions but advantages to a 501(c)(3) corporation. It also shows that the services of an experienced attorney can save time and ensure a successful bid for your 501(c)(3) status. Contact Kajioka & Associates Attorneys at Law for a consultation today!
