There are a lot of different ways to manage your money. Some people choose to put their money into retirement accounts, others see money as a thing to be spent. Still, for others, money is opportunity. It isn’t just corporate overlords who see the advantages of creating businesses to invest in. Sometimes all a good idea needs is a little bit of financial support to get off the ground, and it can be a life changer. But, as you begin considering your investment of time, money and energy into a small business, you may want to consider the merits and potential personal satisfaction of how to structure that business.
Non-profit organizations are any small business that are designed with the intention to serve others in some charitable capacity. This might be through the sale of goods, the manufacturing of materials, or the performance of some form of service.
Registering as a non-profit organization has certain advantages, but it isn’t the right choice for everyone. From a tax perspective, you have to be very aware of what you are doing financially when you create a non-profit organization. Breaking the tax code could mean huge penalties for everyone involved. This is why it is recommended that you consult with an accounting professional to help you create a non-profit, and to determine if it is really the best choice for you.
Advantages of Non-Profits
Non-profit organizations have certain tax advantages, including additional deductions and in some cases even tax exemption. Any organization that is officially classified as a public charity has this benefit. This means you must register as a 501c(3). By doing this you will not have to pay any corporate income taxes. Often there are also exemptions for sales tax and property tax as well.
Another benefit of doing this is that your business gains eligibility for public and private grants that are designed to help charitable services. Any non-profit organization maintains its formal structure as a business, which means it can still have employees and will have the rights of a corporation, including the benefit of being covered under limited liability law. The difference is that the non-profit itself will never be able to turn a profit for the owners and shareholders. Any funds raised through the non-profit will be carefully watched and will have to go directly back into charitable actions. However, running a non profit does not mean it will be in purely a volunteer situation. Nonprofits need Executive Staff, administrative staff, program managers, and mailroom clerks, all which need to be reasonably compensated. So, there is a way to do good, and be fairly compensated.
If you are considering starting a non-profit organization, make sure that you consult with someone first. Part of running a non-profit means having a careful eye on every dollar that comes in and out of your business, and reporting everything appropriately. A good accounting resource will be your best friend in this area.