Before
you even start considering the specifics of how you’ll run your organization,
you’ll want to consider all the angles before jumping in. There are pros and cons of incorporating as
an educational or research NPO. You’ll
need to carefully examine the nature of your commitment to the public good and
the financial aspects of what this really means for your livelihood before you
can really decide if it’s all worth it.
There
are plenty of good reasons to start an educational or research non-profit
organization. You might want to
consider how each of these might benefit your ultimate goals, now that they’re
starting to take shape somewhere in your mind.
It never hurts to sit down and write up an old fashioned balance
sheet. How exactly it balances out
takes very careful and honest assessment of potential outcomes and what each
pro and con specifically means to you.
There
are plenty of reasons why it might be important for you to get involved with
education or research in your chosen field – some more traditionally altruistic
than others.
Often,
discoveries, even those shared freely, can revolutionize an industry. Many companies that do advanced research
have no compunctions sharing their research with the general public, especially
if they’re well positioned to do something with that information.
Some
people want to generally give back to the community in the form of assisting
their friends and neighbors in keeping their minds nimble. Perhaps your industry needs well-trained
individuals and there is no school that teaches what you do. Maybe you have an idea for basic research
that hasn’t been taken up by universities, but you’re sure you’re on to
something. If there’s a need your
community needs scratches, you might be in a unique position to scratch it and
the NPO can help make this possible.
Special
preference is given to NPO charters that specifically exist to assist members
of the community that have been classified as “underprivileged” by the
IRS. Such community members will likely
consider the benefit of the NPOs work to be of greater value than your average
Joe who has plenty of opportunities elsewhere.
You could really change someone’s life for the better.
The
groups outlined by the IRS as being classically underprivileged are:
·
Elderly – those over 65, in or out of
public programs or nursing homes.
·
Children – especially those deemed, “at
risk.”
·
Low income – defined as making up to 2x
Federal Poverty Level in a given year.
You didn’t think this was going to be all sweetness and
light, did you? As someone who needs to
make a living, there are some downsides to this sort of venture that you need
to be aware of. Even if you like to
focus on the positive, as a general rule, you’d be fool to jump into your NPO
without fully realizing what sort of headaches might accompany the process.
It is, by default, the litmus test of any NPO. Until the IRS gives its blessing, your NPO
status is wishful thinking, even if you’re incorporated as a non-profit in your
state.
But who in their right mind wants to deal with the
IRS? Most people like to lay as low as
possible, lest they wake the sleeping giant.
It seems sometimes that asking for tax-exempt status is akin to asking a
border patrol agent to do a good job of frisking you on your way back from
Columbia. If you’ve got some
tax-related skeletons in your closet, they need to be fully exorcised before
you even consider beginning 501(c)(3).
As soon as you begin dealing with the intricacies of tax
law in the United States, you’re sure to want to run screaming the other
direction or take a nap. This is
normal. While there remains tax code,
never let it be said there is no cure for insomnia. Your accountant is one of those odd folks who enjoy digging
through the thorniest language to save you a few bucks. Bless them.
You might want to take the challenge on if you are very good with tables
and interpretation, but you still need to visit a tax attorney at least once to
get some advice on your startup.
Oh, the forms you’ll file! The time and effort spend filling out legal filings and forms or
organizing statements and budgets is enough to turn anyone off the whole
process. Those who are doing this for a
real connection with people might be especially daunted when dealing with their
bureaucratic counterparts.
Of course, there are those who specialize in helping
people out with exactly such tasks, but unless they’re really into your
mission, odds are they won’t be donating their time.
Generally, your paperwork burden falls into two or more of
the following categories:
·
IRS
forms and filings – as often as quarterly
·
State
– more likely once per year, but some states make no bones about taking their
pound of flesh
·
County
– some areas have a county tax that has exemption waved at it every year.
·
City
– some cities or towns have a yearly filing in addition to a city sales
tax. You may very well be exempt from
both.
·
University
– while you don’t likely owe a collegiate partner any money, odds are you’ll
need to send in some institution-specific paperwork regarding your tax status
every year. Never underestimate the love
most Universities have for paperwork in quadruplicate. The goldenrod copy is yours.
Your NPO might wind up being responsible for some taxes,
even if your 501(c)(3) status is accepted.
The Unrelated Business Income Tax often applies to related business
enterprise(s), or feeder businesses, that are too successful. Since all your money must be rolled back
into the business, if you can’t find a use for money by the end of the fiscal
year or quarter, it might be taxable income.
This is often avoidable by having good, realistic expectations of the
likely feeder business profits or donation schedule, so you can figure this all
into the budget.
Another potential form of taxation might include income
generated by investment incomes and property held by the NPO. Like any business tax, it must be paid
quarterly on investment income of over $500 per year. Your accountant will have a good idea if you’ll be requiring
quarterly filing on any such income.
If the IRS forms weren’t enough, you need to prepare statements
and reports every year or fiscal quarter for not only the IRS but also, for
members and board members. This can be
quite involved, depending on the size and mission of your NPO. If there were financial information, you’d
rather not have made public – too bad.
It’s very likely the law in your state.
When it’s time to hang it all up and call it a day, don’t
think you get to take as much as a paperclip with you. All physical property and assets must be
given away to another recognized NPO, should yours dissolve. There are plenty of reasons an NPO might
call it quits. You will not recover the
money and property you put into the venture in compensation. You may give the resources to a new NPO that
you start or another existing one. This
rule exists to keep NPOs from becoming money-laundering schemes (most of the
time), and is law in all 50 states.