Establishing a charitable organization can be a great way to provide help for those in need, but you should be aware of the advantages and disadvantages of such a corporation. Often the best time to learn of these drawbacks and benefits is while you’re still in the planning stages of your organization. That way you’ll have a better idea of how to structure your association.
The Ups
One of the best things about establishing a nonprofit organization is you’ll be tax exempt. What this means is you don’t have to worry about paying federal taxes on any of the income you receive. The great thing about this is that any money you receive can be invested in the growth of your organization. What’s more is that anyone who contributes to your business qualifies for a tax deductible for his or her contribution, which goes a long way in alleviating tax burdens. Another great thing about nonprofits is they qualify for both public and private grants. You have an undeniable advantage here because a majority of government agencies and foundations only offer their charitable donations and grants to public nonprofit organizations. Something else to think about is the fact that there are limits placed on the assets courts and creditors can access for nonprofits. While the directors, founders, employees and members of your association aren’t held liable for debts, corporation members are not legally allowed to use the organization to protect themselves against immoral or illegal activities for which they are responsible.
The Downs
While not exactly a disadvantage, you have to be careful how you operate your nonprofit organization. If you don’t, you risk losing your tax exempt status. For instance, while you’re considered a charitable organization if your efforts are focused on religious, scientific, educational, literary or scientific pursuits, you have to refrain from intentionally or unintentionally dabbling in lobbying or political campaigning, both of which can cause you to lose your nonprofit status. No matter how strongly you might feel about a political matter, you have to make sure you never bring your views into the public eye. Another disadvantage of starting a nonprofit corporation is that doing so often requires an abundance of time and money. While you might be tax exempt, you’re still beholden to local, state and federal laws, which means you might need the services of an accountant or lawyer. In addition to consulting, state incorporation and legal costs, you also need to apply for your tax exemption, which can cost anywhere from $200 to $850, possibly even more.
You have to decide how you’ll pay for these liabilities as well as any other costs not covered by contributions throughout the course of operating your organization. If you don’t like keeping up with paperwork, you might want to find someone who does and does a good job of it. Nonprofit corporations have to keep meticulous records throughout the year and make sure they are submitted to the state as well as the IRS. Should you fail to submit your paperwork or not do so by your deadline, you run the risk of losing your exempt and active status. Another con of having a nonprofit is you have limited control, which is due to the fact that you have to comply with regulations and laws, which include any bylaws and regulations you establish. Depending on your state, you might have to have a specific number of directors. These individuals have the authority to appoint or elect individuals who will decide on your future policies. While there are several pros and cons of having a tax-exempt organization, you won’t have to worry about any of them if you don’t do your part in continuing to qualify for your status. Always remain current on the latest requirements and your obligations.
Legal Disclaimer
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