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I want to get free donations to my business. Should I start a Non-Profit or an LLC company?

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Caran Ebert, CPA
Starting a new business is not for the unprepared or faint at heart. My advice is to start small as a sole proprietorship, under a dba (Doing Business As) registered with your county recorder or you can you’re your own name without registering. Because most people tell me that they are starting with little if no available money, I am going to add a little about overall COST in my message also.

Both entities you are requesting information about, LLC and Non-Profit C Corp, will require filing fees for Federal, State, and County levels. Be prepared to hire a manager or board of directors to run either of these companies. You should apply for an employer federal identification number (EFIN) from IRS no matter what type of business you have; sole proprietorship, corporation, s-corporation, limited liability company, partnership, etc.

A Not-For-Profit requires one extra step from the IRS, which is to get a Determination Letter from IRS. By determination letter, by this I mean that IRS will "determine" which code section of the tax law code that the organization will fall under which determines how much a donor will be able to deduct on their tax return. You must tell IRS for what cause or group of underserved people that you will be donating the money, time, and donated material to. The application used to be FREE, today the charge is $400 if you expect/receive under $10,000 annually and $850 if you expect/receive over $10,000.

If you are the organizer of a Non-Profit Corporation 501(c)(3), then you must be disassociated from being paid for your role in the company as it constitutes self-dealing which is illegal. Just think of how a big corporation is run and you can imagine how you will need a lot of employees and an accountant to perform an annual audit to qualify for government money. The bookkeeping for a not-for-profit requires a person with the knowledge of this type as it is very close to fund accounting that a government uses as you have to keep track of every item you told IRS was the reason that you are giving to a sector of people (or animals). You can’t comingle your funds or write yourself a check out of the organization’s bank account, that is illegal.

For a Not-For-Profit determination letter from the IRS, the application is 26 pages long and it requires projection of 4 years of income, budgets, questions, etc. It would be best to write a business plan that would help serve to answer the questions that IRS is asking on the form and the business plan could serve as a conduit for grants and loans.

Most businesses fail in the first 3 years so you must educate yourself in how to do so you don’t fail. The best way to learn about operating a business is to take a class sponsored by SBA, the end result is a business plan which might land you a loan at your local bank. They offer 6 weeks and 14 week programs that are held in the evenings in most major cities. Start small, a sole proprietorship so you can get the idea of what is involved and how you have to keep your private life separate from your business bank account.

Please contact me for more information at my email caran@carancpa.com or call (775) 341-1719
Leave a Comment 205 weeks ago

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John Stancil
Caran offers some good advice, but there are some new developments. The IRS Recently introduced a simplified application for 501(c)(3) statue, the Form 1023-EZ. This is a four-page form that is completed online. In addition, they just dropped the fee to $275. I would also emphasize that the state charter should be obtained as a non profit corporation. You state that you want to get free donations to your business. You need to do an evaluation of what you want. A non-profit organization must serve a charitable purpose and not just a way to get things donated to you. Are you seeking to make a living from this business, or are you seeking to meet a public need?
Leave a Comment 204 weeks ago


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