Can I recieve a 501(c)(3) status
February 19, 2006 12:01 PM Subscribe
Can I recieve a 501(c)(3) status with a self run computer support web-site?
Mod note: removed link to site, put it in your profile if you want people to take a look at it.
posted by jessamyn (staff) at 1:37 PM on February 19, 2006
posted by jessamyn (staff) at 1:37 PM on February 19, 2006
You don't need to be charitable, but you can't make a profit...
You're not supposed to accrue and transfer assets, but there is no special limit on how much you can pay yourself and your employees.
posted by StickyCarpet at 4:52 PM on February 19, 2006
You're not supposed to accrue and transfer assets, but there is no special limit on how much you can pay yourself and your employees.
posted by StickyCarpet at 4:52 PM on February 19, 2006
You're not supposed to accrue and transfer assets, but there is no special limit on how much you can pay yourself and your employees.
That's true, but then you have to salary yourself, and suddenly you're dealing with payroll- the poster's company looks like a one, maybe two-person shop that just gets paid when clients pay them. It's taking on a lot of overhead.
And IANAL, but I'm fairly sure you can't just set some outrageous salary for yourself to get around profits.
posted by mkultra at 6:49 PM on February 19, 2006
That's true, but then you have to salary yourself, and suddenly you're dealing with payroll- the poster's company looks like a one, maybe two-person shop that just gets paid when clients pay them. It's taking on a lot of overhead.
And IANAL, but I'm fairly sure you can't just set some outrageous salary for yourself to get around profits.
posted by mkultra at 6:49 PM on February 19, 2006
Best answer: To put it succinctly, I think it's possible (sorry codemonkey), but I wouldn't.
First of all, if you are actually running it by yourself, I don't see that it materially affects anything whether you're for-profit or not. If the service is accepted and valued by the community, there's no reason to go non-profit with all of the extra paperwork and oversight that entails. The business costs will all be deductible business expenses, and you'll just have to pay tax on the profit that you take as income -- the same as if you took a salary.
Second, non-profit status is sometimes abused, and oversight is paperwork-intensive but difficult to verify and dependent on the responsibility of the non-profit board (yes, you'll have to have one). People may not believe that your non-profit status is legitimate, unless there's a true community that is responsible and accountable.
Third, non-profit will get extra scrutiny from the IRS. If there's anything dodgy about it, you could see the exemption stripped and face taxes and penalties, plus the costs of potentially dealing with tax court (you'd have to hire a special lawyer, it's not recommended to go pro se here or use your brother-in-law).
That said, if you're sure that this is appropriate, what you need to do is:
a) establish a C-corporation
This is time-consuming, a bit expensive, you should have a lawyer helping you, and you need to establish a board of directors -- which should be people who will be keeping an eye on things, not just the website but the books, and could potentially fire you, and stuff like that.
b) seek non-profit status
This requires again some tax expertise -- not for the average freelancer. You have application forms and annual reports to file. A board will ideally hire an accountant with NPO experience to handle this -- again, not something the average individual should get into.
c) cede control of the business to the community as run by the board.
This last is gonna be the hardest part if it's a labor of love. There has to be a shared goal that makes it worth it.
Now, I have seen a service business that created a "non-profit" arm. This guy was a scammer, and the whole NPO thing was just a tax dodge, but it made it possible for him to deal with certain clients who didn't want to be "selling" a service, even though the fees were the same and there was no real difference to the consumer. It just made his partnerships more palatable. There weren't any assets to speak of, just fee payments for contractors, who were himself and his wife. I think that it was legal and proper, although almost everything that the company and the NPO did was dodgy in and of itself. That's not a great recommendation, but that's partly my point. This isn't something to undertake lightly.
posted by dhartung at 9:23 PM on February 19, 2006
First of all, if you are actually running it by yourself, I don't see that it materially affects anything whether you're for-profit or not. If the service is accepted and valued by the community, there's no reason to go non-profit with all of the extra paperwork and oversight that entails. The business costs will all be deductible business expenses, and you'll just have to pay tax on the profit that you take as income -- the same as if you took a salary.
Second, non-profit status is sometimes abused, and oversight is paperwork-intensive but difficult to verify and dependent on the responsibility of the non-profit board (yes, you'll have to have one). People may not believe that your non-profit status is legitimate, unless there's a true community that is responsible and accountable.
Third, non-profit will get extra scrutiny from the IRS. If there's anything dodgy about it, you could see the exemption stripped and face taxes and penalties, plus the costs of potentially dealing with tax court (you'd have to hire a special lawyer, it's not recommended to go pro se here or use your brother-in-law).
That said, if you're sure that this is appropriate, what you need to do is:
a) establish a C-corporation
This is time-consuming, a bit expensive, you should have a lawyer helping you, and you need to establish a board of directors -- which should be people who will be keeping an eye on things, not just the website but the books, and could potentially fire you, and stuff like that.
b) seek non-profit status
This requires again some tax expertise -- not for the average freelancer. You have application forms and annual reports to file. A board will ideally hire an accountant with NPO experience to handle this -- again, not something the average individual should get into.
c) cede control of the business to the community as run by the board.
This last is gonna be the hardest part if it's a labor of love. There has to be a shared goal that makes it worth it.
Now, I have seen a service business that created a "non-profit" arm. This guy was a scammer, and the whole NPO thing was just a tax dodge, but it made it possible for him to deal with certain clients who didn't want to be "selling" a service, even though the fees were the same and there was no real difference to the consumer. It just made his partnerships more palatable. There weren't any assets to speak of, just fee payments for contractors, who were himself and his wife. I think that it was legal and proper, although almost everything that the company and the NPO did was dodgy in and of itself. That's not a great recommendation, but that's partly my point. This isn't something to undertake lightly.
posted by dhartung at 9:23 PM on February 19, 2006
This isn't something to undertake lightly
Which, given the posting history involved, may be exactly what is being looked for here.
posted by DrJohnEvans at 2:02 PM on February 20, 2006
Which, given the posting history involved, may be exactly what is being looked for here.
posted by DrJohnEvans at 2:02 PM on February 20, 2006
Response by poster: Thank You for your answers, Drjohnevans, I'm not sure what you are saying?
posted by lowster11 at 5:53 PM on March 1, 2006
posted by lowster11 at 5:53 PM on March 1, 2006
This thread is closed to new comments.
Either way, talk to an accountant.
posted by mkultra at 12:47 PM on February 19, 2006