You have already had the brilliant idea and formed the nonprofit organization within your state to address the need in your community. Your organization meets all of the state requirements for a nonprofit organization, but you have discovered your efforts at fundraising are hampered by the fact that you do not have federal recognition of your nonprofit status; therefore funds to your organization are not tax deductible. What is your next step? How do you take your organization to that next level? Should you take your organization to that level?

 

If your organization has an attorney, you can ask if it is a prudent step. If you already know it is, then you can certainly complete the paperwork yourself. It is a process– and not a small one– to complete the forms and collect the documentation. Form 1023 from the IRS will guide you through the entire process. It also provides a complete checklist that you can use to make sure that you are providing the IRS with every piece of information, along with the appropriate user fee, that they require.

 

The organization needs to be aware that, while there are several advantages to receiving tax exempt nonprofit status (510c3 status), there are some disadvantages and the Board of Directors needs to have all of the information in hand when making the decision.

Advantages

            Tax Benefit

Your organization will receive a tax benefit by having this status. The organization will need to contact qualified tax/accountant professionals to ensure that all state and federal rules and regulations are being followed. The primary tax benefit will be that an organization does not have to pay taxes on the profits earned at the end of the year. This will enable the nonprofit put more funds back into the organization to further your mission.

 

Donor Confidence

For many nonprofits, this is the key advantage. Donations made to your organization become tax deductible once you have received your 501c3 status. This status makes your organization so much more appealing and trustworthy in the eyes of donors.

This does not just apply to individual and corporate donors but to the Federal Government, as well. Almost 100% of the federal dollars awarded through grant competitions are awarded to organizations that have 501c3 status. Simply put; if you do not have nonprofit tax exempt status you are not eligible to apply for and receive federal funding. If your nonprofit does not think it will ever need to rely on federal funding, then this may be something that does not persuade your Board. However, diversifying funding streams is essential to every organization– profit and nonprofit.

Disadvantages

Cost

We have all heard the phrase: “There is no such thing as a free lunch.” And obtaining and keeping your tax exempt status is evidence of that statement. While the advantages may bring in various quantities of much needed funds, it is not without a price. From the cost to complete the comprehensive federal forms (unless you feel qualified to complete the forms on your own) to the user fee that EVERYONE who applies has to pay.  The user fee changes frequently and it is advisable to double and triple check that fee before finally sending off the completed forms.

 

In addition,there are ongoing costs that are associated with maintaining your tax exempt status. These can include professional staff to monitor your program compliance, audit and accounting staff. Be aware before you apply that the costs do not stop when the application is mailed.

 

Red Tape

There are a number of words that could have been used to name this disadvantage; bureaucracy, compliance, rules or regulations. However, it all amounts to the same thing. The ongoing cost to keep your tax exempt status can all be boiled down to “red tape”.  If your organization receives funds from the federal government, you have to spend that money the way your contract requires. They do check.

 

Depending on the amount of federal funding received and the organizations bottom line, a set of audited financial statements will need to be prepared by a qualified third party accountant. All of the rules, regulations and requirements are provided to you with your federal award. It is worth the time to read and understand that document so that you know what is expected of you.

The last thing a nonprofit organization wants is to have your federal funds recaptured, that is, having to pay back all of the federal funds you were given. No one wants that; so read your grant agreement fully and follow the rules.

 

 

Prepared by the Grammarly grammar checker writing team to encourage and educate in the field of non-profit activities in partnership with www.wideawake.org

If you have a desire for helping others, and are considering starting your own organization, a degree in social justice can help you learn the skills you will need.

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We have all been there. Taken in by the plight of someone in need. But what do you do if you want to make sure the organization you want to donate to is worthy and reputable? There are some easy ways you can make sure.

 

Contact

If you are located in the same city as the organization, pick up the telephone and call the organization and ask for the fundraising office. Ask them for their tax id number and ask if your donation would be tax deductible. If the fundraising office cannot give you that tax id number and tells you that the donation would not be tax deductible; thank them and hang up. And run! Do not write these people a check. Even if you are not interested in taking a tax deduction for your donation, the fact that your donation would not be indicates that the organization is not engaged in charitable activities.

 

IRS

The Internal Revenue Service maintains a list of all IRS approved non profits and charities. If you have access to the Internet it is reasonably easy to go to the IRS website (www.irs.gov) and check the charity and non profit section. With recent changes to the statues, the IRS has begun stripping many once charitable organizations of their tax exempt status. That means donations to these organizations are no longer tax deductible. While these organizations may still do fine work in the community; they fail to meet the federal government’s standard of a tax exempt charity. The website is full of sites like the IRS and Guidestar that will provide you with information regarding the organization you are interested in.

 

Better Business Bureau

Your local Better Business Bureau is also available to provide you with information regarding organizations within your community. Phone your local office and ask if there have been any complaints filed. Keep in mind however, that just because someone has filed a complaint against an organization doesn’t mean that you shouldn’t contribute. Sometimes people file complaints because they didn’t get what they wanted. Not because of anything bad or criminal that the organization has done. By the same token, just because no one has complained, doesn’t mean the organization is completely pure.

 

Reputation

Ask around. Most non profit organizations have websites these days and the majority of them list who has donated. Check to see if you know someone on the list. See if other organizations that you are familiar with do business with the non profit. Reputation within a community is a valuable commodity and non profits work hard to keep that reputation as positive as they can. If you are interested in a specific non profit, talk to them. They will be willing to answer your questions and provide you with literature and additional information. If you truly want to see what they do, ask. They will be glad to show you. And this glimpse into the organization will give you an even broader idea of just where your contribution will go and what it will provide within the organization and within the community.

 

Another excellent option is to make use of independent rating organizations such as charity navigator. Regardless of your methodology it is in good judgement to practice due diligence when it comes to donating your money, time and resources.

If you are interested in organizing your own fundraising learn more on how to fundraise online which will allow you not only to give out of your own pocket but also to equip others to give while creating buzz for worhty causes.

 

 

 

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Children suffering from Poverty