Is there a social cause you’re passionate about? Do you want to help the homeless population in your community find affordable housing? Are you passionate about caring for abandoned animals?

If you’re trying to find the best way to pursue your passion and do good, you might be considering starting a nonprofit organization. But why start a nonprofit if you can just volunteer or donate?

There are a variety of reasons to consider nonprofit status as you pursue helping your cause. For example, in 2017 alone, Americans donated over $410 billion to charities. 

Even a sliver of those donations could help you make a big impact. So, what do you need to know about starting a nonprofit organization?

Read on to learn about not for profit status and how you can get started. 

Understanding Nonprofit Status

First, what does it mean to be a nonprofit? Does that mean you can’t get paid?

You know that nonprofits are charities, usually looking to help solve a world social problem. But officially, they aren’t called charities, instead are nonprofits.

Becoming a nonprofit is actually an IRS status and has to do with taxes. There are a few different classifications to consider. 

501(c)(3)

A 501(C)(3) is a charitable organization like you are familiar with. They do charitable work, solving societal problems. 

This status means you will not pay federal income tax, you become exempt. If a nonprofit becomes a 501(C)(3), it also means they will be able to be exempt from paying their state and local taxes too as those often mirror the federal qualifications.

Another benefit of this status is the ability for donors to donate and get tax deductions. It incentivizes donors because they can get tax deductions from donating. Many donors won’t make donations to charities if they can’t get the tax deduction. 

The IRS says to maintain a 501(C)(3) status the nonprofit must remain true to its mission. So, if you start with the intent of feeding the homeless, then want to add helping underprivileged children go to college, you need to notify the IRS of your change in focus. 

It’s important to get legal advice and do your research. Getting this status can be complicated with many hoops to jump through. 

Don’t assume the IRS will be okay with you wanting the status and focus on the charity without actually having done all the appropriate documentation.

Not for Profit Vs. For-Profit

Again, let’s go back to the question of why your organization exists. 

A business is started to provide goods and services for profit. People pay a business and they make profits which they can use to operate, pay employees, and keep profits for themselves. This is called a for-profit model.

In a charitable nonprofit, the organization can make a profit. It can appropriately cover its expenses and employee costs, then all of the remaining profits can go back to the cause associated with the charity. Hence, the not for profit status. 

It should be noted that nonprofits must still remove taxes from employee wages, they are not exempt, only the nonprofit becomes exempt from corporate taxes. 

Advantages of Having Nonprofit Status

While it can be challenging to get a nonprofit status because of the documentation required, it is worth it. And while you might prefer to focus on your cause, do the good work, going through the steps to get the nonprofit is important for the success of your charitable organization.

Let’s consider some of the advantages of becoming a nonprofit. 

Tax-Exempt

One of the biggest advantages already touched on is becoming exempt from paying federal taxes. As a charitable corporation, you can avoid paying those corporate taxes. 

Many large for-profit companies will negotiate with cities and states to get a lower corporate tax rate. As a small organization, you don’t have that negotiating power. 

The charitable status allows you to avoid the corporate tax altogether. 

It’s essential to work with an accounting service that understands the unique features of a charitable organization so you protect your tax-exempt status. 

Public and Private Grants

When you have a formal charitable organization status, you will become eligible for more public and private grants. There are many philanthropic organizations that won’t give their grants to a group that doesn’t have nonprofit status. 

Formal Organization

While certainly you are passionate about your cause or you wouldn’t be delving into this nonprofit world, you need to separate yourself from it legally.

You want your organization to have its own status separate from you as an individual. 

When you become a formal organization, it puts the mission of your charity out in the forefront instead of this being about your interests. 

Create a board of directors who share your passion and bring something to the table that will benefit the charity. They might have social influence, contacts, or even resources they can offer the charity that helps it to achieve success. 

The old adage many hands make lighter work applies here because you use what they bring to help support the focus of the charity. 

Liability Limits

Again, while the ball may have started rolling as your passion project, you need to protect yourself. When you become an organized and official charity, you limit your personal liability. 

This is huge to protect and separate yourself from a potential legal dispute for the charity. Nobody imagines someone suing a charity until something unexpected goes wrong. You must protect yourself from liability. 

Creditors and courts would only have access to the profits under the charity window, instead of your personal assets with formal charitable status. 

If times get tough, it also protects you from being liable for the debts of the organization too.

Why Start a Nonprofit?

Doing charitable work is noble. If you feel passionate about your cause and want to pursue it as a charity that terrific. 

But why start a nonprofit? It not only helps your cause legally and financially but it protects you too. 

If you would like help getting started with the finance-related questions and organization for your charity, contact us today.

Our firm has experienced tremendous growth over the last 4 years. The Charity CFO expands leadership to better serve clients including promoting two individuals and adding to two more staff accountants. We are now up to

Tim Hudson, CPA

In March 2020, we were beyond thrilled to make Tim Hudson our Chief Operating Officer. He will help me co-lead this business and work on training our team to be the best accountants we can.

Before this role, he helped me build the infrastructure we needed to triple the size of The Charity CFO in 2019 and serve countless clients. He started working with us 2 years ago and we immediately knew he was exceptional.

But check this out! Out of 75,000 people that took the CPA exam, only 133 people scored 95.5 or better. Tim was one of those 133! That’s the top 0.2% This legitimizes our claim that he is a bona fide genius!

We are so proud to have you co-lead this team and bring your brilliance to benefit the underdog industry we service. You could work anywhere but we love that you chose us and our clients! If you know and love Tim, congratulate him!

Brett LeClair

Brett was one of the first full-time employees we hired. Brett joined the firm as a staff accountant in pursuit of working with an industry and job that had more satisfaction and meaning. He is used to giving back to his community after spending time in the military, including deployments. After getting out of the military, he started building his accounting expertise in the gaming and casino industry. Wondering if he could apply those skills to something greater than himself…he was led to apply for a job with The Charity CFO!

Brett has a technical eye and commitment to refining processes for improvement. He has developed into one of our top accountants and was promoted as Accounting Manager in January 2020. Brett will oversee a team of staff accountants and serve as a financial thought leader for many of our clients.

We are thrilled to have you continue to grow in this company. You could have continued your service anywhere, but you chose to work with our team and clients!

The Charity CFO expands leadership to better serve our existing clients and make sure our new clients get the same level of service. In addition to Brett and Tim, we continue to expand our team of accounting staff. In March 2020, we added two new staff accountants to serve our newest clients.

We cannot thank our existing clients enough. The Charity CFO has grown organically through referrals and existing networks. Thank you so much for your support! If you have a colleague looking for a better accounting solution, have them contact me.

Tosha Anderson

Founder and CEO

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What is the difference between for-profit and nonprofit bookkeeping? Find out in this article and why you need bookkeeping services for your nonprofit.

[/vc_column_text][vc_single_image image=”29731″ img_size=”large” alignment=”center”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]When you think of a nonprofit, you might think that finances don’t matter. However, nonprofit bookkeeping is essential for having a thriving organization.

Whether you’re the founder of a nonprofit or want to work for one, nonprofit bookkeeping is a good skill to have.

You can use your skills to help the nonprofit manage finances so that the group can serve as many people as possible. But you should know the basics before you start bookkeeping.

What Is Nonprofit Bookkeeping?

Nonprofit bookkeeping is similar to bookkeeping for a for-profit business, but there are some differences. Bookkeeping requires tracking revenue and expenses for the nonprofit.

You should track whatever donations you receive as well as other forms of income. Since some nonprofits may not have much of a bookkeeping budget, you may need to use a free or low-cost method for tracking the revenue.

Also, like any organization, nonprofit bookkeeping involves tracking expenses. Of course, many nonprofits will want to keep these low.

However, every organization will have operating costs. Depending on the type of nonprofit, you may also have to account for other expenses, like major equipment purchases.

Nonprofit bookkeeping tracks all of these things for tax time.

How Does It Differ From For-Profit Bookkeeping?

While nonprofit bookkeeping is similar to bookkeeping for a for-profit business, there are some important differences.

The first difference to consider is who owns the organization. For-profit businesses typically have shareholders who invest in the business to help it grow.

However, nonprofits don’t have any owners, and the founders won’t benefit financially from the nonprofit.

The income a nonprofit receives is primarily from donations and grants. On the other hand, a for-profit company usually sells goods or services to make money.

Tracking the income for a nonprofit isn’t as easy as tracking inventory and sales.

Nonprofit bookkeeping also involves tracking assets that the organization can use to grow the organization or help the people the nonprofit serves.

Also, nonprofits are usually exempt from paying taxes. While nonprofit bookkeeping is still important, the exact software and methods differ.

Bookkeeping Software

A large for-profit corporation can afford to spend money on a robust accounting program. Corporations can also afford to hire a team of accountants and bookkeepers to manage finances.

However, a nonprofit doesn’t have this ability. The majority of a nonprofit’s income should go toward the primary mission of the organization.

To keep nonprofit bookkeeping costs low, an organization can opt for a free or low-cost accounting program. At first, the founder of a non-profit may want to handle the bookkeeping.

However, as the nonprofit grows, it can help to hire a bookkeeper. Then, a specialist can manage the finances for the organization.

Nonprofit Taxes

Many nonprofits qualify for a tax exemption. However, that doesn’t mean that a nonprofit doesn’t have to file taxes.

Most nonprofits still have to file taxes, even if they don’t have to pay anything. Still, certain nonprofits don’t have to file at all.

Churches, church conventions, and church associations all don’t have to file taxes. If an organization is part of a group return for taxes, they won’t need to file separately.

Another exempt group includes organizations that have to fill a different return.

Unless your nonprofit falls into one of those categories, you will need to file a nonprofit Form 990. The filing deadline is the 15th of the fifth month after the end of the fiscal year.

One tax to be aware of is the excise tax, which applies to private foundations that have investment income. When doing nonprofit bookkeeping, it’s important to track investments to note how much the organization might need to pay.

How to Do Bookkeeping for Nonprofits

The method you use to do nonprofit bookkeeping can depend on your organization. Factors that affect it include the size of the organization, whether it’s exempt from filing taxes, and more.

Each year, you should research the changes made to laws surrounding nonprofits. Then, you can use that information to inform how and what you track.

And as your organization grows, you can decide if you need to switch to a different bookkeeping method.

If you’ve never done nonprofit bookkeeping, you should also be flexible. Because of the differences, you may need to relearn how to track revenue and expenses.

Understand the Status

Depending on the nonprofit, you may have a slightly different tax status. You should understand your status both in your state and federally.

When it comes time to file taxes, you need to make sure you file them correctly. If your organization can’t afford an accountant, understanding your status is especially vital.

You should know what the tax designation is for your organization. Of course, there are 501(c)3 organizations.

However, there are many types of nonprofit organizations with different designations. The specific designation can determine what the IRS requires for taxes.

Get Organized

Unless your nonprofit is one of the special types that doesn’t have to file, you need to file taxes each year. If you don’t file, you might have to pay a fee.

Go too long without filing, and the organization could lose its tax-exempt status.

By organizing forms and tracking revenue and expenses throughout the year, you can stay on top of your nonprofit bookkeeping.

It will also be easier to train a new bookkeeper on a system you already have going. If you need to hire help with bookkeeping, you can make it easier for everyone.

Use Technology

The creation of multiple accounting programs has helped businesses and organizations with their bookkeeping. Since many nonprofits have small budgets, it can help to find an affordable accounting program.

Hiring a professional team of bookkeepers can get expensive. While you may need one or two people, using technology to manage the books can help everyone.

Not only will it reduce costs, but it will be easier for the board of directors to access financial records.

Bookkeeping Made Easy

Whether you have bookkeeping experience or not, you should understand the basics of nonprofit bookkeeping. Many nonprofits are tax-exempt, but managing the books is still important.

If you don’t keep track of revenue and expenses, it will be much more difficult to grow the organization. You may also risk losing the nonprofit’s tax-exempt status.

You don’t have to be a financial expert to get into nonprofit bookkeeping. However, you should be willing to learn so that you can keep track of everything.

Want to learn more about nonprofit finances? Check out our recent blog posts![/vc_column_text][/vc_column][/vc_row]