10 Essential Steps to Start a Nonprofit (cont’d)

STEP #4: APPLY FOR TAX-EXEMPT STATUS

Step #1 is to develop a mission statement.  Step #2 is to develop your team.  Step #3 is to incorporate with the Secretary of State.  Step #4 is what most people know to do when building a charity–apply for tax-exempt status.

The IRS grants tax-exempt status to nonprofit corporations that are approved.  It’s the federal government’s way of saying “you will be exempt from paying some taxes in exchange for your service to the public good.”  It is also the government’s way of rewarding donors who can deduct their donations from their taxes.  Many recognize the IRS chapter that governs tax exemption for public charities, 501(c)(3).  There are so many myths and misconceptions with tax-exempt status that I could write a 10-post “myth” series on just misconceptions.  I will address these misconceptions below, but first, what is involved in the tax-exempt process?

Once you incorporate with your state’s secretary of state, you obtain an EIN number, you have your team of people, then you file for tax-exempt status with the IRS using form 1023.  Many new organizations will qualify for using the short-form 1023EZ.  There is a fee schedule.  When approved, you will receive a Determination Letter that you will save, and keep on hand to present when requested to organizations and others as proof of your tax-exempt status.

Tax exemption misconceptions to keep in mind:

  1. Your organization is not exempt from paying all taxes.  You are exempt from federal income and unemployment tax, and possibly exempt from some state sales, income and employment taxes.
  2. You are now a public organization.  You are taking public dollars in furtherance of your stated mission, and are to be transparent to the public.  Your tax returns, much of your operations, your board meetings, are to be available to the public (within reason).
  3. You aren’t in charge–you and the board of directors must work together as an organization, not a private, closely-held business.  This is difficult for some to accept when someone has spent a large amount of time developing a charity only to be voted out by its board of directors.  If you want absolute control, become a for-profit business.  You might not have as much access to donations and grants but depending upon your cause, you might still attract donors or sponsorships.
  4. You don’t just “get a [federal] number” and start collecting donations.  You are a business (i.e., nonprofit corporation) and you are now exempt from paying some taxes.  You must operate as a business, observe corporate formalities, observe requirements for maintaining federal tax-exempt status.
  5. As a public corporation (once you receive tax-exempt status), you are scrutinized by both your state’s Attorney General and the IRS to ensure that the public is protected when donating its money to you and other charities.

If you are committed to a cause and to starting a nonprofit, contact me with any questions about formation or applying for tax-exempt status at julie@juliemillslaw.com, or visit http://www.juliemillslaw.com.

10 Essential Steps to Start a Nonprofit (cont’d)

Welcome to the third in a series of ten posts discussing what you should do to start a nonprofit.  You have your mission statement, you’ve assembled your team.  Now, it’s time to take your first formal, legal step–incorporate with the Secretary of State as a nonprofit corporation.

My posts regard Ohio, but these steps are similar in most states.  Be sure to check the rules and law in your state.  Articles of Incorporation are filed with the Secretary of State to form a corporation.  With nonprofit corporations, your articles must address issues important to the IRS, including conflict of interest and dissolution matters.  It is important to note that filing articles with the Secretary of State does not make your organization tax exempt, and donations are not tax deductible to the donor.  For an nonprofit corporation to become tax exempt, it must apply for tax-exempt status with the IRS, which will be addressed in a subsequent post.

The Articles of Incorporation are relatively easy to complete and file.  In Ohio, articles can be filed online.  You need to submit your name, address of the organization, designate a statutory agent to receive legal mail, and the names of your incorporators.  Once your articles are accepted, you will receive a charter number as an official corporation.

If you would like assistance filing articles of incorporation for a nonprofit corporation, email me at julie@juliemillslaw.com, or contact me through http://www.juliemillslaw.com.  I can help get your nonprofit started so you can fulfill your mission!

10 Essential Steps to Start a Nonprofit

I recently posted the first post in a series of ten on steps to follow when starting a nonprofit.  Step #1 was to develop a mission statement.  Step #2?

STEP #2: BUILD YOUR TEAM

Oftentimes, a person with a passion has others around with the same passion. Few people volunteer somewhere or plan fundraising events or develop grassroots campaigns without making friends and developing a network of others who have the same passion.  If you decide to start a nonprofit, use these like-minded people around you to build your leadership team.

If you are thinking that you don’t have a network of people yet, just a passion that you want to pursue through forming a nonprofit, then your next step will be developing your organization’s leadership team.  Reach out to people who have beneficial skills, along with a connection to the cause.  An accountant-friend who has a child with a disability might be someone to consider for a treasurer position, or as a board member, of your nonprofit that offers sports programs to children with disabilities.  A coach-friend might agree to serve on the board of your nonprofit that will offer after-school sports programs to kids.

When first forming your team, consider filling the following roles:

  1.  Executive Director.  The founder often fills this role to serve hands-on in the development of the nonprofit.
  2. Board of Directors.  For most nonprofits, you should start with a manageable, odd number of board members (odd number to break a tie vote).  The Board guides the group in following its mission.  Your board needs to be engaged and committed to the nonprofit’s mission, and willing to meet fiduciary obligations in serving on a board such as attending meetings and upholding the organization’s bylaws.
  3. Volunteers (if applicable).  Most nonprofits start with little-to-no budget.  Nonprofits rely on volunteers to aid the organization in its cause–volunteers help with projects, spread the word on the nonprofit’s work, work on committees, and help the nonprofit in ways too numerous to list.  If your nonprofit plans to utilize volunteers, there should be plans in place to manage this group of people who are so passionate about your organization’s cause that they will work for no compensation.

Developing a leadership team is, in my experience, one of the most exciting and most frustrating times in the formation of a nonprofit organization.  People are motivated to make a difference, but eventually clashing personalities and different ideas can create serious impediments to the governance of a nonprofit. Managing people is a skill that will be required, and when your team has clear bylaws to govern, a great leadership team can be extremely rewarding for everyone involved.

If you want to start a nonprofit in Canton, Akron, Cleveland or Columbus, or discuss issues with a current nonprofit, contact me at julie@juliemillslaw.com, or visit http://www.juliemillslaw.com.

What it’s like to be a court-appointed guardian?

The Canton Repository newspaper wrote an excellent article on serving as a court-appointed guardian.  The name used is CASA (court-appointed special advocate) or GAL (guardian ad litum).  CASAs/GALs are typically appointed for incompetent adults, or for children, in court proceedings.  In almost every court, CASAs and GALs are needed.  I like this article’s explanation of what the role requires, and especially how those who’ve served explain what they do. The article focuses on Stark County in NE Ohio, but the roles and experiences apply throughout Ohio.

What is a trust?

What is a “trust”?  What does it do?

There are three parties involved in a trust.  First is the person who makes the trust, called the settlor or grantor.  Second is the person who is to benefit from the trust, called the beneficiary (or beneficiaries).  Third is the person who manages the trust, called the trustee.  A trust is a contract, with terms determined by the grantor to govern how the trustee manages the trust, terms to decide how the assets in the trust are to be distributed to beneficiaries, terms to govern who is included in the class of “beneficiaries” if the beneficiaries are not clearly defined, terms to decide when the trust should terminate, among others.  Because a trust is a private contract, the settlor or grantor can decide upon whatever terms and conditions he or she wants in the trust, unless they are illegal or against public policy.

Essentially, a trust is a way for someone to control his or her assets “from the grave.”  For comparison, with a last will and testament, assets are distributed once the deceased’s debts are paid by his estate.  The administration timeframe with a will is usually no longer than thirteen months.  With a trust, the trust holds assets (typically by re-titling or re-deeding an asset) and the trustee makes distributions according to the terms of the trust, which could be at staggered ages (25, 30, 35), or to pay for college, etc., and could last for years.

There are several different types of trusts used for several different purposes.  Most of my clients use trusts to provide for children or grandchildren (pay for college, provide distributions at key ages in life), or they have a child or grandchild with a disability and they want to leave assets to their disabled loved one to maintain their quality of life, without jeopardizing government benefits.   Other common trusts include credit shelter trusts, life insurance trusts, domestic asset protection trusts, firearms (“gun”) trusts, pet trusts, IRA trusts, among many others.

Trusts have certain benefits that clients find attractive.  Unlike wills, which are public documents and can reveal private information including finances, a trust is not a public document.  Privacy can be a big concern for those wishing to keep certain things private, such as business owners and their finances.  Trusts, if properly funded, avoid the probate process.  In some situations, trusts can protect assets from creditors.  Particularly important for many of my clients (as mentioned above), trusts permit someone to control the distribution of their assets from the grave, often for years.

This blog post is a very general and condensed explanation of the benefits of a trust.  If you are interested in learning more about how a trust might benefit you, email me at julie@juliemillslaw.com or contact me via http://www.juliemillslaw.com.