Nonprofit Myths: #1 - Tax Exempt Status; Ownership

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Starting and running a 501(c)(3) tax exempt nonprofit is a lot of work and not everyone is cut out for it. Some go into the venture with false assumptions and myths and only later find out they didn’t understand what they were getting themselves into. Let’s examine some of those myths.

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Myth: Nonprofit and tax-exempt mean the same thing.

Truth: The state grants nonprofit status. IRS gives tax-exempt status. Once you get nonprofit status, you can go about your mission and announce to the world that your organization is a legitimate state-approved nonprofit. However, if you do not also go the step further and apply for federal (IRS) tax-exempt status, your nonprofit is not eligible for tax deductions for those who make donations (churches and organizations with annual revenues under $5,000 are the exceptions), and the nonprofit does not qualify for most foundation grants.

Moral of this Myth: Apply for federal 501(c) (3) tax-exempt status if you want donations to be tax deductible, and you want to apply for foundation grants.

 

Myth: I own my nonprofit.

Truth: No, you don’t. Nonprofits are not owned. They are run by boards of directors who call the shots and make the decisions. If you are not on the board, you have no control or input into the business of the nonprofit. If you get voted off the board, you are just out. The organization continues without you, even though you may have started it and invested blood, sweat, and tears into building it.

Moral of this Myth: Be very careful who you let on your board of directors.

 

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"Nonprofit Myths" is a 12-part series by Dr. Kitty Bickford, founder of Pasture Valley Children Missions. As a nonprofit consultant, Dr. Bickford has provided guidance to thousands of nonprofit leaders in best practices for setting-up and effectively running their organizations. We're also proud to claim Dr. Bickford as an alumna of The Grantsmanship Center. 

© Copyright 2020 Kitty Bickford, DBS, CPC     Used  with permission

 

For further delight and edification, here's a short series on board development:

Who's On Your Board?     Where Can You Find Board Members?     What Does a Board Do?

 

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