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.
There are several large start-up hurdles for becoming a legal non-profit. First, it is going to cost about $800 to file all the paperwork. Second, you must have a team called a “board” supporting your vision and organization; this is not something you can do alone. There are no legal ways around these conditions. Additionally, your board needs to be “large enough.” Only 49% of board members can be paid under CA law. So if you will be paid in any way by the organization there must be at least two other board members (not your spouse).
Do I have other options than setting up a 501c3 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 for the ministry to become a non-profit organization?
We generally recommend, to work with an established non-profit 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.
There are many times that you cannot find an existing non-profit organization to incubate your ministry. So, it may be time to set up a non-profit when you are loosing decent sized donations because you do not have your paperwork filed. Are you losing more than the $1000 filing fee? Others know it is time when they see a natural board coalescing around a vision that cannot be supported by any existing group.
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 your 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 email us for the forms at admin@revivalvalley.com
