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[DPRG] Re: 501c3 Pro's & Con's
Subject: [DPRG] Re: 501c3 Pro's & Con's
From: W.E.Cole
wecole at ev1.net
Date: Fri Feb 21 03:01:01 CST 2003
Since this subject has come up several times over the past couple of weeks since I joined the club (and was first seriously considered in 1997 according to the Meeting Minutes in the archives), I decided to find REAL information about the Pro's and Con's of filing for 501c3 Non-profit tax exempt status. I got this information from several sources on the internet and I think the questions asked at the end of the information is especially helpful.
Benefits of filing for 501c3 non-profit corporation status :
- Contributions of property, money, stock and services are tax deductible.
- Income earned by is tax-free. (This is not the same as sales tax charged for items sold by the club for fund raisers.)
- 501c3 status continues even after the original founders pass on.
- 501c3 status limits liability for directors, officers, employees, volunteers and members.
- Eligible to receive private and public grant money.
- Many corporations donate only to 501c3 groups.
- Eligible to participate in hundreds of federal and state governmental programs.
- Can get cheaper advertising rates in publications.
- Lower Postal Rates on 3rd Class Bulk Mailing.
- Can get discounted hosting space from internet service providers.
- Free radio and TV Public Service Announcements provided by local media.
- Items purchased by the non-profit group for its own use is exempt >from sales tax.
- Incorporated status allows corporate finacial accounts to be set up in the group's name.
Disadvantages of filing for 501c3 non-profit corporation status :
- Requires a fair amount of paperwork, including preparing the Articles of Incorporation and the corporate Bylaws.
- Formal minutes to meetings must be kept on record.
- Must maintain detailed financial records (for small operations this is often like an expanded checkbook).
- Annual and informational reports are sometimes required by the Secretary of State and other governmental agencies.
- A state sales tax license is required, taxes charged and periodically remitted to taxing authority for items sold.
- Incorporation costs around $50 in most states and the Federal tax-exempt application costs $150 for smaller organizations.
Is a 501(c)3 Right for Me?
That depends. While there is no sure-fire checklist that will produce a definitive yes or no answer, the following questions may give an indication which way to go. The list is by no means exhaustive, but anyone considering establishing a nonprofit corporation and then filing for the federal 501(c)3 tax exempt status should think about and answer the following questions. If most of the answers are YES, then a 501(c)3 may be appropriate. Conversely, if more of the answers are NO, then it may not be right.
<<Note: When it says 'you' it refers to the club, not to us as individuals.>>
a.. Are you beginning to receive more donations (either in cash or as donated items) over time as you conduct your activity?
b.. Would you prefer not to report these donations as personal income?
c.. Would you like to receive a tax deduction for the donations you personally contribute to the wildlife rehabilitation activity?
d.. If your personal funding for the activity is limited, would you like to be able to solicit donations from the public?
e.. Even if most a major portion of your activities are funded with your own donations, do you think you can generate at least one third of each year's total donations from the general public?
f.. Are you willing to spend some time in fundraising activities, asking people for donations?
g.. Would you prefer to purchase items at a discount and not have to pay sales tax? Or even get items donated free of cost from local merchants?
h.. Do you think the nature of your activity would appeal to foundations or local businesses that make grants to community service organizations?
i.. Are you or someone you know willing to spend time on financial and other recordkeeping?
j.. Do you have a few trusted friends or colleagues that might serve on a Board of Directors? Are you willing to give up some degree of control to that Board of Directors?
k.. Are you comfortable with the fact that as a 501(c)3 organization, the financial affairs of the organization are open for public scrutiny?
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