Now that you have written your organization’s business plan, you have a clear idea of how you’re going to accomplish the goals of your non-profit.  You are ready to apply to the IRS for tax-exempt status.

Remember that tax-exempt and non-profit are not interchangeable.

Non-Profit is Not Tax-Exempt

Non-profit means that your organization uses any monies it raises to fund the cause of the organization.  At the end of the year, you will not be paying out profits or dividends or disbursements to shareholders or owners like a for-profit business.  Any fundraising or donations to the organization are used to run the organization and to expand the organization’s reach.  This is a state-level status.

Tax-exempt is a filing status with the Internal Revenue Service.  This means that you do not have to pay taxes on the activities within the organization.  The idea is that the funding activities are to support the cause of the organization and not for individual profit or gain.

Where to Find IRS Information

You can read about different types of tax-exempt entities in IRS publication 557.  The IRS website has lots of information for tax-exempt entities.  Be sure to look through the Tax Information for Charities and Other Non-Profits page as well.

Another great resource is the IRS publication 4220, which is a great introductory piece on tax-exempt organizations and the things that classify you as tax-exempt.

While you can prepare your application for tax-exempt status yourself, it is not an easy task.  The applications are lengthy, especially for 501 c 3 status, so it is a great idea to enlist the help of a good accountant or someone who is experienced in helping non-profit organizations through this process.

While many organizations exist to help non-profit organizations get through this whole process, keep in mind that they will charge you for those services.  Be sure to ask lots of questions and get a clear explanation of what each service provides and what is the total cost to you.  Then you can choose the services that are right for you and your organization.

When Can I Start Acting Like a Non-Profit?

Your organization can begin conducting its affairs through the non-profit corporation that you set up at the beginning.  It is important, though, to get the process of applying with the IRS started as soon as possible.  The process can take anywhere from 6 weeks to 12 months, depending on how back-logged the IRS is and on how well your application is prepared.  Many applications are rejected on the first filing; that does not mean that you won’t be able to get approved. If your application is rejected, the IRS is usually looking for more information. The rejection letter will detail what is needed to re-apply.

While the application process can be time-consuming and can seem quite detailed, once you have received your approval, your organization can gain many benefits.

Let’s say you have a cause or a calling.

A non-profit corporation is a way that you can make your cause more official, much in the same way that a regular corporation or LLC makes your business official.

Depending on how your cause is to be carried out, you have many options on how to structure your non-profit organization. Some non-profits need to collect and use donated funds towards their purposes, while others may involve no cash whatsoever.

Forming a Non-Profit Organization

Setting up a formal entity is advisable to organizations that will be collecting donations (or any organization that has a potential for liability).

This keeps the charitable revenues separate from things that would not fall into the range of your mission. Like your house payment.

So the first step is to file a non-profit corporation. What a lot of people don’t understand is that filing the non-profit corporation does not completely make you official.

Filing a 501 c 3 Application with the IRS

To really get official, after you file the non-profit corporation, you still need to file an application with the IRS for tax-exempt status. That means that you are asking the IRS for the benefits available for your type of non-profit or tax-exempt organization.

The goal is to set your organization up so that instead of making profits like a for-profit business, your organization is using the monies that it raises towards the mission of the organization. You can still do things like have staff members to run the organization, and the staff members can be paid for their service. You just can’t disperse profits like with a for-profit business. Instead, the profits are put back into the organization and its goals.

Benefits of a 501 c 3 Corporation

Along with not having profits and therefore income taxes, another benefit to being a non-profit is the ability to accept donations. Anyone who donates to your cause can then potentially claim their donations as a write-off on their own taxes, personal or business. That is a great selling point to those who wish to donate to your cause.

Some other benefits are being able to apply for grants from the government, private foundations, or from other for-profit businesses; qualifying for programs with other non-profit organizations set up to help non-profits; and better pricing for many services with discounts available to non-profit organizations.

Of course all of these benefits are not without any strings attached. You will have reports and filings to do with the IRS. You will potentially have regulations and rules to follow. Whenever you apply for benefits with an agency, you are agreeing to follow their guidelines or you will risk losing your benefits.

Corporate Filing and Compliance

Having someone on your team who knows how to keep up with corporate filing and compliance paperwork is a good idea, like an accountant who is experienced in working with non-profits. You don’t want to lose your non-profit status due to some forgotten filing.

While a non-profit organization takes work and planning to find the best path for your cause, it can be a great vehicle for advancing your cause and is very rewarding.

And that’s worth investigating.

December 23, 2008, Brad Sugars posted a great column on Entrepeneur.com, Top 5 Mistakes in Forming Your Corporation. The column has some great tips to consider when starting a corporation or LLC.

You have many considerations when deciding to run your business as a corporation or LLC as compared to a sole proprietorship, but it doesn’t have to be a frightening decision. With the help of an experienced team, the transition from sole prop to formal entity can be much simpler and save your time for doing what you do best: your business.

If you have questions after reading the article, don’t hesitate to contact us at 866-663-5224 or email us at: info@nexstepinnovations.biz

We are sure everyone has heard about those little things called Wills. Wills have been around for years. You’re also all aware that smart legal people have been building people’s faith that Wills keep family heirlooms in the family. And of course everyone understands how gracious and kind-hearted those smart legal people are to make Wills affordable for everyone. We all buy into this right? WRONG, only those who have NOT been punched in the kisser by Probate Court still buy into this grand deception that Wills are the best tool to pass your assets on to your heirs.

We at NexStep Innovations have heard the stories of probate court told so many times; they are all devastatingly sad, riddled with family assets being liquidated to cover estate taxes, loved ones coming to blows over who got what or suing each other over dollars, families financially ruined due to the cost of having a smart legal person represent them in probate court.

The Secret Truth: A Will is a bunch of useless papers. It doesn’t prevent the estate’s assets from being frozen for months or years. It doesn’t provide clear direction for the distribution of assets. A Will can be contested by beneficiaries. A Will doesn’t give medical people directions in emergencies when loved ones are emotionally unable to make clear medical decisions. A Will doesn’t provide for additional beneficiaries. A Will doesn’t provide a roof, clothing or food for minor children. It doesn’t protect from divorces or future divorces, and estate assets are not protected from legal actions.

Wills are cheap for a reason; smart legal people make more money representing your beneficiaries in probate court than implementing strong legacy planning. So it may cost you $99.00 to have a legal person draft a Will; however, it can cost Thousands for that same legal person to represent your beneficiaries in court.

Many people out there don’t know what probate court is, so we want to briefly explain. Probate Court determines the total value of your assets after you are no long living. The Court will then determine the total amount of estate taxes the estate will pay and bill the estate for the service of determining the total value of your assets. The Court will then liquidate whatever assets are needed to cover the owed taxes, court fees and your family’s smart legal person’s fees.

NexStep Innovations LLC believes that the fundamental intentions of a Will are good; however, the implementation, protection and misrepresentation by the legal person of the Will are bad. In truth we do not promote one specific vehicle for everyone when it comes to building and protecting your assets. We believe in creating customized strategies that are specific to you, your beneficiaries and your assets.

If you wish to discover the best ways to protect you, please contact us.

Individuals often tell us that they have been told by their legal or tax advisor that they are too small to incorporate. After talking with these individuals further we discover that the answer of  “You’re too small”  is really just a way for the advisor to discourage further conversation and discussion because the advisor has no education, experience, knowledge and/or clear understanding of incorporating.

A lot of Business owners, for some reason, believe that every legal and tax advisor has knowledge of every single area of law and taxes. Which is simply incorrect; it’s kind of like saying that a chiropractor could prescribe you medication for a bacterial infection. He’s a doctor, right? All legal and tax advisors specialize in specific areas of practice, so not every legal advisor will be able to give qualified advise about incorporating, as it is a specific area of law. The majority of tax advisors specialize in personal 1040 tax preparation; that does not qualify them to advise you on corporate or LLC taxes.

One of the main reasons why an advisor might say to you “You’re too small” is because stating the truth is like saying, “I will lose the money I am making off your business because I am not qualified or capable to handle your business, if you choose to incorporate.” By stating the truth your advisor would be making your business a priority over their business’s financial benefit and they are not going to do that. Professional advisors do not like admitting lack of experience or knowledge, so they will say what they need to in order to keep your business and feel superior. In addition, most legal advisors do not grasp the tax benefits of incorporating and most tax advisors do not grasp the liability benefits of incorporating. Neither cares about the benefits of the other side, because it isn’t their area of specialization, but you should care as both taxes and liabilities affect you and your business.

The choice to incorporate is yours; the choice is not your legal advisor’s or tax advisors. You should know that there is no such thing as a specific dollar amount in your bank account that triggers the need to incorporate. There isn’t a specific amount of liability that requires you to be incorporated and there is no such thing as too small to incorporate. You should also know that there are benefits to incorporating that you may not receive due to the industry your business operates in. You should be advised to the upkeep needed to ensure the integrity of the incorporated entity. You should understand the risks involved if the incorporated entity is mismanaged. You have the right to be able to make an informed decision. You may just have to replace your current tax and/or legal advisor, and it is ok to do so.

At NexStep Innovations, LLC we don’t believe in providing curious business owners information about incorporating that is self-serving. We don’t believe in bulling business owners to do business with us. We don’t offer “have-to-do-it-now” specials or “first-time caller” discounts. You’ll never have to file a restraining order against us because we don’t specialize in stalking. We do specialize in incorporating, so if you would like to speak with someone, call us today to schedule your consultation.