Frequently Asked Questions about Starting a Nonprofit
Q: Am I subject to any county or municipal regulations?
A: Some local jurisdictions do require nonprofits to obtain licenses, permits and file annual financial reports. Contact your local revenue office and county clerk’s office for more information about local regulations.
Q: What does tax-exempt mean?
A: Nonprofit organizations provide public services that are considered valuable and important to society. The government offers tax-exemption as an indirect subsidy, in exchange for valuable public benefits. If your organization is tax-exempt it will fall under the IRS tax code 501(c). This exempts the organization from paying federal, state and local taxes. Furthermore, donors can deduct their gifts to your organization from their federal and state tax returns. However, tax-exemption excludes employment withholding taxes, Social Security and some state and local taxes. Most Ohio municipalities impose an income tax. You must check with the IRS to find out what state and local taxes you are expected to pay.
Q: Does our nonprofit organization need liability insurance?
A: A nonprofit organization is not completely immune from liability. It is advisable to consult an insurance advisor about obtaining liability insurance.
Q: Do I need to incorporate? What are the benefits of Incorporation?
A: The benefit of incorporating with the state is the protection of limited liability. Incorporation protects you, the board, and your staff from the legal liabilities incurred by your organization. You may also be eligible for reduced postage rates and property tax exemption as long as the property is used “solely for charitable purposes” (R.C. 5709.121). In general it is easier to gain tax-exempt status from the IRS when you are incorporated and you can prove your operations are beneficial to the public.
Should you choose not to incorporate, you may still file for tax-exempt status. The state of Ohio will also recognize your organization. You are required to register for a name and file organizational documents with the secretary of state.
Q: Can I operate my new nonprofit on a trial basis without getting official nonprofit status?
A: Yes. You may wish to secure funds and launch pilot programs before you decide to become an official nonprofit organization. If you wish to do so you can seek financial support through a fiscal agent. A fiscal agent is an existing nonprofit organization that holds the tax-exempt status and agrees to request donations on behalf of a fledgling organization that does not yet have tax exemption. The fiscal agent is legally responsible for the completion of the project and for the proper management of donations. The Foundation Center offers additional information on working with a fiscal agent.
Q: Should I start a new nonprofit organization if there is a similar organization in my community?
A: Probably not. You may not want to duplicate a service that already exists. The time, effort, and money that go into building, incorporating and sustaining an organization can be extensive. It is also difficult to compete with a similar cause for limited resources. You may want to consider merging with a competing organization or working in cooperation with an existing organization. Be sure to research your local community’s needs before proceeding with your startup plan.
Q: How do I find qualified legal/accounting assistance?
A: Finding pro-bono legal assistance can be difficult and may not be possible. The Foundation Center website has many references for finding a pro-bono nonprofit attorney.
To find a local attorney or accountant you should start by asking other nonprofit organizations for referrals.
To find an attorney you can also contact the State Bar Association by phone, (800) 282-6556 online: http://www.ohiobar.org/ or email: firstname.lastname@example.org.
For more information about finding a licensed CPA you can visit the Ohio Accountancy Board.
Your local chamber of commerce seeks to stimulate business opportunities and may be another helpful resource.