Non profit taxes

[MadieHauck]

hi! I am the director of a charity 5k. We send all of our proceeds to a registered 501c3. Last year we raised over 23k and just handled the funds with our own bank account (kinda sketchy collecting people's money that way). We are wanting something a little more professional and safe for future years. BUT- we are hesitant to start an LLC or business account because of the taxes. 

What would the taxes look like if we created a business to collect charity funds? And how much donated money would we lose due to business fees/taxes? 

[Joe_D-CPA-PFS-CFP]

Hi MadieHauck,

Thanks for the question. I am assuming you are a valid 501(c)3 tax exempt organization. If so, The IRS does not consider fundraising proceeds a taxable source of income. However, you could still owe taxes, depending on how the funds were used and if anything was provided in exchange.

Here is the IRS link to Exempt Organizations that provides a lot of useful information. If you are not a valid 501(c)3 tax exempt organization, you can create one. As long as the purpose you are raising and spending money for qualifies per the IRS guidelines, here are the steps:

9 Step Process to Start a 501(C)(3) Organization

• Step-1: Get clear on your purpose
• Step-2: Deciding the type of nonprofit
• Step-3: Name your nonprofit
• Step-4: Form a Board
• Step-5: Let’s write the Bylaws
• Step-6: File your incorporation paperwork
• Step-7: File for 501(c)(3) tax-exemption
• Step-8: Ensure ongoing compliance
• Step-9: Get Donations

Here is the IRS site that explains the exemption requirements. You do not have to form an LLC or Incorporate, most states allow for unincorporated nonprofit associations. Associations are generally organized and operated as both nonprofit and tax-exempt entities. Nonprofit status refers to incorporation status under state law; tax-exempt status refers to federal income tax exemption under the Internal Revenue Code.

Please follow up if I did not adequately answer or understand your question.