You can form an informal non-profit, simply by getting together with other people to provide support or services to benefit others. There are no special benefits in being an informal non-profit, other than personal satisfaction in helping others, but there may be certain legal liabilities as you conduct charity activities without incorporating and the members’ or donors’ contributions are not tax deductible. This type of non-profit organization is not obligated to file tax returns.
This type of nonprofit is formed by incorporating in a particular state to form and be recognized as corporation. A corporation takes the place of individual ownership. The corporation owns itself, and therefore, can own its own property, have its own bank account, take out its own loan, and can continue on its own even if the founder leaves the organization. One of the major benefits of incorporation is that the corporation takes on legal liability and financial risks so that founders, officers, and board members have little or no liability and with the exception illegal acts, or gross fiscal misconduct.
Nonprofit corporations must file with the IRS as a separate step in order to receive tax exempt status. An organization cannot receive tax exemption unless it was first formed as a corporation with an accepted charitable structure and purpose. This type of non-profit organization is obligated to file tax returns if donations are over $50K per year also need to and include a detail of each donor to validate it with the IRS. Members or donors’ contributions are tax deductible and the non-profit organization must keep a detailed records of the use of contributions received in case the IRS chooses it for an audit. The deadline for tax filing is May 15. The time frame for the approval of the exempt application with the IRS is 90 days if all requirements are met.
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