Nonprofit 101

A check in a box along with the words "Nonprofit 101" writen on a chalk board.

Nonprofits are usually thought of as 501(c)(3) organizations. However, there are a whole range of nonprofit types, 501(c)(1) to 501(c)(29), all with their own specific rules and regulations. For the purpose of this post, we will be leaning toward 501(c)(3).

501(c)(3) nonprofits are exclusively charitable, education, scientific, or religious organizations with a few others thrown in. Anything that the nonprofit does needs to be for the advancement of its purpose. Keep in mind that most commercial activity is not allowed by the IRS; check with a professional accountant about whether this is true for specific activities. An example would be schools charging tuition for the purpose of education.

Restrictions

Political Affiliation

Keep in mind that there are restrictions when getting 501(c)(3) status. One such restriction is that there can be no participation in political activities, local, state, or federal. Nor any lobbying.

[A]ll section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.

Source IRS

Taxes

501(c)(3)’s do not have to accept donations, but the IRS looks favorably on donations because it shows legitimacy. Also most organizations need to send in a yearly Form 990 to the IRS. There are also different rules depending on the jurisdiction you operate in.

Compensation of Founders

When gathering staff and board members, pay special attention to find people with experience and various specializations that will benefit your organization. Founding members should also have deep pockets. This will give you a good start before getting into the rest of it. However, be careful with payment for founders of a 501(c)(3). The IRS can sanction an organization due to excess benefit transactions, the definition of which is as follows,

[A]n economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of a disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration received by the organization.

Source IRS

Pilot Project

Before even applying for 501(c)(3) status, the best first step is to start by coming up with a pilot project. Come up with the problem you are trying to solve. Enact it. Then look at the impact your organization has with this project. Figure out the pros and cons to how your organization handled its goal. Gather knowledge, adjust your plan, and repeat. As time progresses, your organization will gain credibility and you will be well on your way to have a far reaching impact.

Dreams are not donated to, results are! A vision is a risky endeavor.

Transparency

Transparency is a must in both success and failure. Document everything. Spread the word. Honesty goes a long way and by bringing up failures, you can describe what you would do differently and why it will work.

Strategize, Strategize, Strategize

Strategy is the keystone to success in the nonprofit sector is just as true here as it is in all manner of business. A strategy is a tangible thing that donors can get behind. In turn, it will show them exactly how your organization’s goal will be achieved.

Documentation

Document everything! This will help you out a ton when looking back to see how various strategies worked for your organization. On the other hand, the IRS requires meticulous record keeping to make sure your organization is complying with regulations.

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