Christian Leadership Alliance

Hiring

 1 of 8

12 Steps to Forming a Charitable Organization

America's nonprofit organizations are often referred to as the independent sector, the voluntary sector, or the third sector of U.S. society. As a CPA and former practitioner, I have met with many individuals who desired to start a nonprofit organization, invoking the principles of voluntarism. Hope springs eternal with those who have a dream to start a nonprofit to provide service.

This enthusiasm and vision to help others spawns about 80,000 new applications for tax-exempt status each year. The Internal Revenue Service (IRS) approves about three out of every four applications or 60,000 each year.

Terminology. Understanding the nonprofit terminology is a good starting point. You will often see the term "not-for-profit" used in reference to nonprofit organizations. This does not mean the nonprofit organization cannot be profitable (have more revenue than expenses). Rather, a nonprofit organization ideally would have at least a nominal profit as it will use profits to continue its mission. The term "not-for-profit" is a proper term for an activity engaged in without a profit motive, such as a hobby, where the related expenses are not deductible as business expense as contrasted with "for-profit" organizations, who distribute profits to the owners.

Purpose. In order for an organization to be classified as a nonprofit entity, its purpose must be primarily related to qualified charitable or educational endeavors. The essence of a nonprofit is to carry on an activity because it is important, and not as a means of generating profits for investors (as with a for-profit organization). This does not mean that a nonprofit organization cannot hire people and pay them for their work, or that it must operate at a loss. Any surplus gained should generate more "good works."

There are different categories of nonprofit organizations with different treatment, privileges and obligations under the Internal Revenue Code (Code). To qualify for a Federal Tax exemption, your organization must be organized for one or more of the purposes specifically designated in the Code. A few major distinctions are outlined below:

• 501(c)(3) organizations. The most common type of nonprofit organizations are classified as 501(c)(3) organizations under the Code. They must prove that they operate exclusively for religious, educational, scientific, or similar purposes. Churches are included in this category. A 501(c)(3) does not have to pay income taxes and is authorized to issue tax-deductible receipts to donors for contributions. Having tax-deductible status significantly helps in attracting grants and contributions from foundations and individuals that are crucial to a charitable organization.
  
  

next page … |  1 of 8

Choose from these membership options:

• Ministry Member

• Business Member

---

See sample

See more …

Average Reader Rating: Not rated

---