If you’re thinking of starting an organization, you may be wondering if the organization would qualify as a nonprofit. This is especially true if the organization you’re wishing to start has a charitable or philanthropic mission. So what exactly is a nonprofit organization?
Simply put, a nonprofit organization is an organization that does not have commercial owners and exists to address the needs of society. Nonprofit organizations are typically involved in areas involving religion, education, health, social services, arts, etc.
One of the appeals of filing an organization as a nonprofit organization is that the organization may apply to be exempt from federal income taxes. In this case the contribution of donors to a nonprofit organizations may or may not qualify as charitable deductions. If you want further information regarding this issue, see Publication 557 at IRS.gov.
The financial reporting of a nonprofit organization often includes a statement of financial position, a statement of activities, and a statement of cash flows. Some nonprofits are also required to file IRS Form 990 or Form 990-EZ. Since there are no commercial owners in a nonprofit structure, the difference between assets and liabilities is reported as net assets (this is used instead of owner’s or stockholders’ equity). The amount of net assets is presented in classifications of: unrestricted, temporarily restricted, or permanently restricted. The classification depends upon the stipulations given by the donor.
The revenue for a nonprofit are typically gained through things such as donor contributions, program fees, dues, fundraising events, grants, and investment income. Expenses, like net assets, are divided into classifications such as: program expenses, management and general, and fundraising.
Starting a nonprofit is a big decision and it’s important to seek the right counsel to see if this is the right path for your organization to follow. Contact our Joplin office and we would be happy to have one of our qualified CPA to discuss these options with you.