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When to Consider Non-Profit Status?

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Are You Thinking About Non-Profit Status?

At some point in your business journey, you may consider non-profit status for your organization. We’re sure the thought has crossed your mind at least once before. With all the benefits surrounding non-profit status, why wouldn’t it? For some organizations, non-profit status is an essential step to maintaining the success of your business or organization. For others, it may not be necessary. There are a few ways non-profit status can help your organization thrive, and we want to help you decide when to make this switch.

What is a Non-Profit Organization?

A non-profit organization is an organization that qualifies for tax-exempt status by the IRS. This is typically because the organization’s mission is to help social causes or provide a public benefit. Non-profit organizations are all around us. Today’s popular examples include hospitals, universities, charities, and foundations.

How to Qualify as a Non-Profit Organization?

Businesses and organizations typically qualify for non-profit status when they serve the general public in some beneficial way. Non-profit organizations do not use their profit for anything besides advancing their organization or program. Because of this, non-profit organizations must make their financial and operating information public so donors can see where their money and funds are being placed throughout the organization. This means that any donor or company donating to your organization can deduct their donation from their tax return. This ensures the non-profit organization will not pay taxes on any financial transitions received through funding.

There are specific requirements for having a 501(c)(3). Ensure you view your state laws and the Charities and Non-Profits section of the IRS website.

Some requirements for a 501(c)(3) taken from the IRS website (not a complete list):

  • Organizations must be organized and operated exclusively for specific tax-exempt purposes to be exempt from federal income tax
  • No part of the organization’s net earnings is allowed to inure to the benefit of any private shareholder or individual
  • No substantial part of the organization’s activities can consist of carrying on propaganda or otherwise attempting to influence legislation
  • The organization should not participate in or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office

What Are the Benefits of Having a Non-Profit?

Tons of benefits come with having non-profit status. One popular benefit is financial funding and grants. Since your organization will be able to have tax-except status, you’ll also have access to government grants. Grants are free money given to your organization that can help with funding, trips, more supplies, and other organizational needs. The best part about grants is that they are not loans and never have to be repaid! Also, once an organization receives a grant, they are more likely to receive other grants in the future. This creates what is known as the “waterfall effect.” Receiving grants will allow your organization to gain credibility and status from donors and contributors.

Another benefit of having non-profit status would be advocacy. With your organization, you can argue for change and advocate for your designed mission. You’ll be able to engage in certain activities, such as advocacy work, including lobbying for specific policy changes. Not only will you be making a difference in the world through advocacy, but you will feel yourself contributing to a greater good.

What Are the Disadvantages of Having a Non-Profit?

However, there are also minor disadvantages of having non-profit status. Sometimes, it may be hard to see concrete results when first starting with non-profit organizations. It’s hard to think that all your work is contributing to a larger, more important goal. This can be tiring and mentally draining.

Setting up a non-profit organization also isn’t the simplest of projects. Creating a 501(c)(3) requires significant paperwork. This includes ongoing record-keeping and reporting obligations to maintain compliance with government and state offices.

While having a non-profit organization, you are also limited to specific activities. You will have restrictions on lobbying, political campaigning, and engaging in conflict-of-interest rules between employees. By working with a Daytona-based business lawyer, you can review what limitations will be placed on your organization when working with lobbying activities. Working with a non-profit organization means all employees must have the same feelings, intentions, and morals as the designed mission.

When to Make the Switch

If you’re wondering if it’s time to switch to non-profit status, your intuition is probably correct. If your business focuses primarily on pursuing charitable causes or social welfare purposes, it’s time you make the switch. First, you’ll want to ensure your business is eligible for non-profit status. By checking with IRS requirements and state rules, you can determine the appropriate needs for your business.

After determining your eligibility, your next step will be converting to corporate status if all is well. Depending on state laws, you may have to alter your entire business structure. A business lawyer can help review your eligibility and go over the necessary steps to converting to a non-profit organization.

After reviewing with a business lawyer and applying for 501(c)(3) status, you can apply at the state level once accepted. Again, state laws vary, and reviewing these measures with a business lawyer will make this process simpler and easier to understand.

Maintaining Non-Profit Status

Once you’ve reached non-profit status, the work doesn’t end there. Maintaining your non-profit status is crucial to the development of your organization and the success of your designed mission. Be prepared to regularly file required paperwork from federal and state-level offices to maintain your status. Typically, a file Form 990 must be filled out by most non-profit organizations, requested by the IRS each year. These files can be reviewed with an experienced business attorney ready to help.

You’ve Got a Partner in Lankford Law Firm

The transition to non-profit status doesn’t have to be stressful. Reviewing your organization’s needs and making the switch can be easier with a Daytona-based business lawyer. To learn more about non-profit status and making the switch for your organization, reach out to a business lawyer at Lankford Law Firm today by calling 850-264-7004 or by filling out an online form.

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