If you are interested in starting a non-profit you should consider the advantages and disadvantages! Non-profits are federally tax-exempt organizations, set up under Section 501(c) (3) of the IRS code. And this is why many times such organizations are simply referred to as a 501(c) (3). 501(c) (3) recognition is granted after meeting the criteria set forth by the IRS. But this criterion requires that a non-profit be formed for purposes other than generating a profit. And the tax returns for these organizations are not filed on a traditional business tax form. Rather, non-profit organizations file a form 990 tax return.
NPOs are frequently begun by like-minded people coming together for the support of a cause. And the cause, at least potentially, has major social implications. Also, they can be formed for private causes, if they fulfill slightly different criteria under applicable laws. Therefore, planning is important.
NPOs may not be subject to income tax. But they may be required to file the form 990 tax return. Tax preparation of these organizations, depending upon the revenue and assets for the organization, maybe more detailed. And this is one of the major differences, opposed to the preparation of a standard business tax return. Before setting up a new organization consider the advantages and disadvantages. Consult with tax professionals or accountants for more information on form 1023. Needless to say, you will want to speak with one that has experience working with non-profits.
Besides serving a social purpose and providing employment, one advantage of forming an NPO is its tax-exempt status. Not-for-profit organizations are eligible by their status to receive federal, state, and foundation funding grant monies. Foundations are required by law to donate a certain percentage of their funds to non-profit organizations. Otherwise, they may possibly endanger their own tax-exempt status. Further, non-profits may benefit from goods and services provided to them. Because the giver is allowed to receive a tax benefit from the donation.
The main disadvantage of filing form 1023 for a 501(c) (3) organization is the increased paperwork that is required. Articles of incorporation must be filed with the state. And by-laws have to be prepared. And meeting minutes must be kept. If a non-profit hires an employee then there are additional forms to complete. Also, the organizations do not have stakeholders or owners. Instead, it is owned by the general public, per se. Note: Employer tax filing requirements for tax-exempt organizations are the same as those for for-profit businesses.
If you have questions about tax-exempt organizations you may contact our professionals using the information below. Or go to our Contact Page and send a request for information. We have multiple locations. And have clients in other jurisdictions, such as Urbana, Frederick, Hagerstown, Rosemont, Walkersville, Baltimore, and Woodsboro MD. We register organizations with any state. And we prepare form 1023. Additionally, we take all the hassle out of setting up the organization including the writing of the bylaws. And we write any required resolutions and provide any required attachments. Also, Business and Financial Solutions is available to you for consultation, program accounting, and form 990 tax returns for exempt organizations.