Thinking about starting a non-profit? 8 things you need to know.

Wikipedia defines a non-profit organization as: “a nonprofit organization (NPO), also known as a non-business entity or nonprofit institution, is dedicated to furthering a particular social cause or advocating for a shared point of view.” Nonprofits are charitable and do not pay income taxes on funds received by the organization. Usually, these organizations are churches, education, or scientific research. However, there are many other types of nonprofits.

If you’re thinking of starting a non-profit, here’s 8 things you need to know:

  1. Non-profits DO make a profit

Just because you are operating a non-profit organization, it doesn’t mean the organization doesn’t make a profit. The profit must be used for the organizations purpose. Such as; feeding the homeless, teaching children to read, exposing underprivileged individuals to music, etc.

 

  1. Non-profits are accountable

They accountable to its donors and the community it serves according to its mission. Most nonprofit charities are small. Many nonprofits are run by volunteers and others.The larger ones could have several hundred employees along with volunteers to carry out its mission.

 

  1. Charitable organizations are run by the Board of Directors.
    These members are expected to ensure the organization is fulfilling its mission. It is also expected to ensure proper handling of the funds entrusted to the organization and to abide by the laws applicable to the organization.

 

  1. Funding comes in many ways.

Nonprofits can be funded either by memberships, donations, providing a service and grants. What is a profit, you ask? It is, simply put, any money received over money spent to perform your charitable mission.

 

  1. Public Charities are the most popular.

State law governs these entities and may vary from state to state. The tax-exempt portion is determined by an election with IRS and must conform to IRS code section 501. Included in this group are The most popular non-profits are designated as 501©(3)’s which is a designation by IRS. Allowing the organization to operate tax-exempt. There are several other designations of nonprofits.

 

  1. Tax Exempt Qualification

To qualify for tax-exemption your organizations must provide a service or product for the common good not have earning the provide for personal benefit of its members and not have a political influence. When your organization qualifies no federal taxes are paid on earned income and your donors qualify for an exemption on their individual taxes for any donations contributed to your organization.

 

  1. Your non-profit may be subject to taxes

While a non-profit is not taxed on its main purpose. It may be subject to taxes for sales that are not part of its primary function. Most non-profit organizations are required to file annually a 990. Itis an informational return which is available to the public. If you fail to file your 990 return, your non-profit may be subject to penalties and revocation can occur.

 

  1. Donations:what’s taxable, what’s not

When donors contribute to your non-profit organization, their donation could be partiallytaxable income. If the donor received a valuable benefit or service, that portion is not tax deductible.Example: Your donors purchased a $100 ticket to your annual fundraiser dinner gala. The dinner cost of $50 will not be a deduction to the donor. The donor will be allowed only a $50 charitable deduction. The dinner is a benefit to the donor therefore it is not deductible.

Starting a non-profit and need help! Schedule a free consultation. Visit our website www.financialsolutionwizards.com for additional information on compliance, accounting and much more.