Is it time for non-profit status?
Many people see the benefits of having non-profit status because they can take tax deductible donations, get reduced fees on community rooms, or receive donated items like food from business. You can take donations as an individual without non-profit status but the donor cannot write it off. So many larger donations or business will not donate until there is a legal non-profit filed with the federal government. However, there are several large start-up hurdles for becoming a legal non-profit.
Do I have other options to get tax exempt status?
If you are looking for ways of getting around being a 501c3 non-profit and taking tax deductible donations; there really aren’t any. Churches by default are non-profits without filing paperwork but they almost always file for legal reasons. And there are strict conditions to meet legally be considered a church. Churches must have regularly established worship meetings with public announcements (ie. a guy in the park with a guitar every other Thursday at 7pm as posted on Facebook is not a regular publicly announced worship meeting). Most ministries are not set up like a church and do not meet these requirements. Another avenue some look into is being a “sole corps”, which are one of the most fraudulent ways to set up a ministry. To have donors take you seriously it will require a legitimate IRS 501c3. There really are not ways around this.
When is it time to become a non-profit organization?
We generally recommend that new ministries work with an established non-profit (like AIAM) or church as long as you can. Their board can write up your small ministry as a “program” with a director, if your ministries vision fits into their bylaw statements. This gives you some time to take donations into a sub-account of their ministry while your vision and team grows. The non-profit we founded has already incubated and launched one other non-profit and is in the process of doing the same for a second ministry.
Now that it is time, what are the first steps?
The first step is to become a state entity, which requires clear vision statements and ministry name. Next you will designate at least two to three (best is at least five) board members. Only 49% of board members can be paid in any way by the organization. So if one of you wants to be paid you will need two other board members (non-spouses) to vote for your pay. And if two of you want to be paid you will need three other board members (non-spouses) to vote for your pay. If no board members will ever be paid then in CA you can sometimes get by with only two board members (but this is not recommended).
Now that we have board members chosen and clear vision what are the detailed steps?
Once you get this far, we have a detailed step-by-step guide with templates for most of the forms. See the step-by-step guide and use our contact form to have us send you the templates.
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