Five Reasons to Incorporate Your Nonprofit Association
Not sure whether to incorporate your nonprofit? Here's some information to help you decide.
If you're involved in a fledgling nonprofit organization, you and the other folks active in the group have probably wondered whether or not you should incorporate. Becoming a nonprofit corporation requires some paperwork, but for many groups, the benefits of nonprofit status outweigh the complications. Here are five circumstances that may make it worth your while to incorporate.
Your Association Makes a Profit From Its Activities
If your group will make a profit from its activities, becoming a nonprofit corporation can yield a great benefit: As long as the money you make is related to your charitable activities, your nonprofit corporation won't pay income tax on it.
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Better Books and Learning begins as a part-time effort by a few dedicated individuals to hold book groups for disadvantaged youth. The volunteers pay all of the expenses out of their own pockets, and the group never turns a profit. Then a board member of a local junior college asks the group to administer and run book groups as part of the college curriculum -- for a fee. Since the group will now show a profit from its educational activities, it decides to incorporate as a nonprofit and seek tax-exempt status with the IRS.
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For more information on whether income is "related" to your group's activities, and thus not taxable, see Earning Income as a Nonprofit Corporation.
You Want to Apply for Public or Private Grant Money
Without tax-exempt status, your group is unlikely to qualify for many public and private grants. While you can form a nonprofit, tax-exempt association, rather than a corporation, qualifying for a tax exemption as an association is harder -- it requires preparing and adopting a complicated set of organizational papers and operating rules. Further, it's generally easier to get the IRS to approve a tax exemption for a nonprofit corporation.
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