Reasons To Incorporate A Nonprofit Association
Starting a nonprofit takes time and energy and many people
wonder what the reasons to incorporate a nonprofit
association are. Incorporation demands a good deal of
paperwork and many groups hesitate to take on such a large
project at the start. One instant benefit to incorporating your
nonprofit is credibility. Your group is instantly assumed to be
a real and legitimate charity when you incorporate. If that is
not reason enough to deal with the paperwork, here are a few
other reasons to consider incorporation.
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Your group is making a profit
Congratulations on making a profit, which takes hard work
and dedication. By incorporating, you will be able to keep all
of your earnings versus paying taxes on your income. The only
caveat is that the money you make has to be related to your
charitable activities.
You can apply for grants
If your group does not have tax-exempt status, you will not
be able to apply for most public and private grants. The
difference between a corporation and tax-exempt nonprofit
organization is dramatic in this regard. Achieving tax-exempt
nonprofit status requires far more paperwork and developing a
set of operating rules but the benefits easily outweigh the
challenges. Being awarded the first grant, even if it is
modest, will usually make up for the effort expended in the
incorporation effort. The Internal Revenue Service is far more
likely to approve a tax exemption for a nonprofit
corporation.
You will solicit tax-deductible
contributions
While it would be nice to think that contributions will come
pouring in because of dedication and interest in your cause,
donors do expect the tax deduction on their gifts. Being able
to offer that will make fundraising much easier.
You need personal liability protection for the
group’s activities
This is an area that many people do not consider, especially
in the group’s infancy. Without incorporation for the
nonprofit, the members and directors are at risk for lawsuits.
For example, your group has a 5k race/walk to raise funds. If
someone is injured during the event and files a lawsuit, the
houses, cars and other personal property of members and
directors could be seized to collect any settlement that is
awarded. This is an extreme example but it does happen. One
strong reason to incorporate a nonprofit association is to
protect members and directors from financial risk.
Your advocacy efforts might attract a
lawsuit
The rules of nonprofit political advocacy are strict (unless
federal lobbying laws are carefully adhered to) and on occasion
these activities will result in a lawsuit. Again, incorporation
spares directors from personal financial liability.
There are a few other smaller financial incentives for
incorporation your nonprofit association. Nonprofits are
eligible to receive reduced postage rates. A special permit is
given to groups and this can mean significant savings if you
plan to do mail solicitation. Property tax exemptions are also
offered to nonprofit groups. Saving taxes on real estate and
other property can mean more money to invest in the activities
of the group. The county tax assessor’s office can offer
particulars on this matter. While the process can appear
daunting, there are many reasons to incorporate a
nonprofit association.
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