Taking a Club to Non-Profit Status...How?

[davetherocketguy]

So I live in Michigan and have the starting of a new club and want to incorporate it - or whatever I should be doing so it can be run as a separate entity. Right now it only exists in name. But I would really like to get a checking account and PayPal account separate from mine so when running events I am not creating holes in my personal checking account waiting for player registrations to come in and the like.

Just curious if anyone has experience or advice on this process. I've never done it before and want to make sure I get it right so I don't piss off any gub'ment agencies. I think the first step is filing articles of incorporation and figuring out which 501,c type I am going to have it be. 501,c,3 is out of the question at the moment because as I understand it the cost for filing is $1500 and there has to be proof that it is a charitable organization...so not happening. Or I could be totally wrong about that.

Please no speculation...thanks.

-Dave

 

[Golden Tuna]

So, it sounds like you're actually talking about two different things...

1. A financially independent entity (bank account, paypal, etc)
2. Legitimizing the entity with some sort of registration

These are not necessarily mutually exclusive. You can handle Step 1 relatively easily without impacting much of anything. That said, if you are going to start a new entity, I suggest collecting a minor board (President, VP, Treasurer). That will (at least) provide a small sentiment of checks & balances. Set up the bank account & tie Paypal to it.

Step 2 is admittedly a little more involved. Our club is a 501c3 charitable organization, which is nice from a sponsorship perspective - we get a lot more because of that charitable label. And, as long as we provide a receipt to our sponsors, they get a tax credit for supporting a volunteer organization.

That said, it does cost money to incorporate, so that might be something to look at in the 1-3 year plan. With that said, you can get moving on Step 1 now and Step 2 can come in down the road when you have a little more financial flexibility.

We just went through this in the last 5-6 years, so I am happy to help or answer any other questions.

 

[davetherocketguy]

Hmmm...As I understand it, in order to get a bank account set up I need a federal ID number for the club which means incorporating it - I guess? As you stated, yes my first step is what you've listed as #1.

 

[DavidSauls]

There's a distinction between a non-profit, and not-for-profit, corporation.

The non-profit is the 501c3, a good bit of work and expense. But it means donors can deduct their donations on their taxes.

The not-for-profit is much simpler. Donors can't treat the money they give you as a charitable donation; though sometimes that doesn't matter; a local business sponsoring a hole might consider it advertising, and expense it that way.

Look into your state laws, as they'll no doubt vary from other states; and consider when you should incorporate as an LLC.

And take this entire post with a grain of salt, as a non-lawyerly explanation from someone with a bit of experience along these lines.

 

[Jabumbo]

My local club just became an official 501c3 and the impression I got was this was the most logical step for us to be able to provide the most with regards to getting sponsors and such.

On the flip side, lots of people were floored when they said that because of the designation the club had to drop 'society' from its official name and would no longer have official members. I guess the 501c7 is better if you want to still maintain the membership organization.

In my mind it was a good move, but i'm also the guy that doesn't play anything but the occasional league night and have no desire to become a tournament player.

 

[kenjiac]

I'm president of our club we are a 501c3. We have members. I don't believe it cost $1500 to file but we did it like 9 years ago. I'm lucky we had 2 lawyers on our BOD that helped get us through that process.

 

[davetherocketguy]

The more I read the more I think I need to talk to the bank I want to do business with first and see what they require and then go from there. I'm 100% certain it costs $1500 to file for a 501c3 erm...well at least my father-in-law accountant is 100% certain. I'm thinking to start things off we should go with the 501c7 status. Seems to be the least restrictive of the not for profit options and most applicable.

I'll talk to my bank in the next few days and see what they say and post it here.

 

[philstine]

I'm 100% certain it costs $1500 to file for a 501c3 erm...well at least my father-in-law accountant is 100% certain.

Not insinuatin' Pops be rippin' ya off, but …

IRS.gov > Home > Charities and Non-Profits > Charitable Organizations > Applying for Tax Exempt Status > Form 1023: Amount of User Fee

 

[jjtwinnova]

Our club switched to a non-profit just last week, the Pittsburgh Flying Disc Society is now just the Pittsburgh Flying Disc. If you have any questions, please PM me and I can get you in contact with the guys who helped do it and they can walk you through the process if you are serious about it.

 

[davetherocketguy]

Not insinuatin' Pops be rippin' ya off, but …

IRS.gov > Home > Charities and Non-Profits > Charitable Organizations > Applying for Tax Exempt Status > Form 1023: Amount of User Fee

lol

Well it does say that those amounts are subject to change so maybe the fees are lower than the last time he looked at it? I donno...

 

[jasonandsharon]

Willing to share info

Hi, Sharon here. We are in CA and recived our 501c3 status 2 weeks ago. We filed a 1023EZ, cost $275.00. I would guess the EZ filing would suit your needs, without knowing more details. State filing was significantly lower, but that is CA.

Happy to share what we learned, and resources we used to complete the process if you want to private message, or email me at [email protected]

We started a bank account with US Bank in business name and and that takes a bit of planning and research in your local area for a bank that fits your needs.

As a side note of irony, our business focus is exactly this...helping clubs and groups take care of all the business stuff. Totally free at this point..looking to help grow the sport. Let me know if we can assist in anyway.

 

[brentjacobs]

Hmmm...As I understand it, in order to get a bank account set up I need a federal ID number for the club which means incorporating it - I guess? As you stated, yes my first step is what you've listed as #1.

This correct, you must have an EIN to get a bank account unless you want it in your personal name(would not recommend that)

If you'd like I have a great word doc version of non profit by laws(necessary if you want to go 501c3) that I can send your way.

 

[davetherocketguy]

This correct, you must have an EIN to get a bank account unless you want it in your personal name(would not recommend that)

If you'd like I have a great word doc version of non profit by laws(necessary if you want to go 501c3) that I can send your way.

You bet! PM incoming...:clap:

 

[JohtoVillage]

Here is a question: I am looking into different options I have for the Ledgestone. We have a large charity component for the event, but also have a paid staff and then use some of the event profits to fund course work, and then leave some profits over from year to year to fund future tournaments. However, I would like to get away from having all of this tied to my name/taxes. Any thoughts?

 

[JRW III]

501c3 - Charitable Organization vs. 501c7 - Social Club

Tax Advantage: Both organizations are expempt from paying taxes. However, a 501c3 has the added advantage of having the donations to the organization qualifying as a tax dedection for the person/entity making the donation.

Paperwork/Complexity: Pretty much every back office aspect of the 501c3 is much more difficult than a 501c7, including qualification, set-up, application process, filing, legal, accounting, corporate management, how you spend your money, etc. While the initial filing fees may not be a whole lot more, the amount you will need to pay the lawyers & accounts helping you out is much more (assuming you do not have someone in your organization who can do it for you).

Because of the complexity with a 501c3, most disc golf clubs are going to be better off with a 501c7. They will still get to set up bank accounts in the clubs name and be exempt from paying taxes (and still be able to pay reasonable salaries/stipends if needed). If an organization has to potential to raise a significant amount of donations by being a 501c3, then it may make sense to go a step further and set it up.

 

[JRW III]

Here is a question: I am looking into different options I have for the Ledgestone. We have a large charity component for the event, but also have a paid staff and then use some of the event profits to fund course work, and then leave some profits over from year to year to fund future tournaments. However, I would like to get away from having all of this tied to my name/taxes. Any thoughts?

Both the 501c3 and 501c7 will enable you to pay staff, use some of the event profits to fund course work, and then leave some profits over from year to year to fund future tournaments. A non-profit is allowed to make money, it just needs to use the money for its mission, not distribute the profits to the owners. Furthermore, it is allow to pay reasonable salaries & stipends. Most non-profits save money year over year for future goals and also for "rainy day funds".

A 501c7 will give you more flexibility on how your funds are spent. You will need to read up on what qualifies as "charitable" for the 501c3. The amount of additional funds you can raise as a 501c3 will sway your decision between the two. Another option I often see is setting up both a 501c7 and 501c3. The 501c3 focus on the qualifying charitable operations and raising money for that and the 501c7 handles everything else.

 

[JohtoVillage]

Thanks for the info. The issue is, this isn't really a club tournament, I run it outside of a club. Would that matter? Also, I don't currently pay myself for the 800+ hours I spend on the tournament. If I ever change my mind and decide to pay myself, I assume I probably couldn't do it? I don't really think a 501c3 would help a lot because I don't consider myself a charity, but I consider myself supporting a charity (St Jude). Would 501c7 allow me to have a sales tax exemption, or is that a local issue?

 

[JRW III]

The issue is, this isn't really a club tournament, I run it outside of a club. Would that matter?

Just form a new organization/club whose sole purpose is to run the tournament.

Also, I don't currently pay myself for the 800+ hours I spend on the tournament. If I ever change my mind and decide to pay myself, I assume I probably couldn't do it?

You can pay yourself so long as it is reasonable and accurately recorded. You would then include that wage on your personal income tax return. (side note, the non-profit club would need to file a 990).

Would 501c7 allow me to have a sales tax exemption, or is that a local issue?

Local issue. Here in Texas, 501c7's still have to pay sales tax.

 

[davetherocketguy]

Soooo after A LOT of reading and talking to people going with a 501c7 seems like the way to go for now. 501c3 will be evaluated later. I have a friend that just went through the 501c3 application process and said that the cost is around $350 here in Michigan. He also questioned whether or not it is worth the hassle for us to go through that process in the first place so I am going to table that idea for at least a year. I think 501c7 is a good fit because it could be argued that the majority of our activities ar for the benefit of our members rather than the community so therefore it is a social club. Plus there is no required club structure as their would be for a 501c3 which I believe requires some sort of board of directors. In my case I can structure the leadership any way I want. The one disadvantage is I will have to file a 990N yearly provided we are not taking in more than $50k. A little annoying but I think it's worth the benefits.

So I got a fed ID number and have applied with the local county clerk and filed a "Doing Business As" form with them. Next step is going to be getting a checking account at my bank. This is a lot easier that I originally thought it would be and was probably over-thinking the process a bit. After this, I think it'll be time to write up (read: plagiarize) some bylaws and appoint some club officers.