Manage Your Past Due Bill Template for NPOs Effortlessly

Past due bill template for NPOs

- Hey guys, Toby Mathis here, partner with Anderson Business Advisors and Law Group, and this is Section Two on forming a nonprofit. In fact, we're just gonna call this one, flat out, Forming a Nonprofit Organization. Now, here's the questions we get a lot of. And that is, what kind of an entity can be a nonprofit? More specifically, can you be an LLC and be a nonprofit? And the answer is, yes, you can, but I wouldn't be. And here's why. When you look at a nonprofit activity. When you look at the actual code, it typically says a corporation or trust doing da da da da da da da. An LLC is a creature of state law, not underneath the federal law. So, in other words, I can go to any state, and I can set up something called an LLC. And then, the IRS is gonna say how do you want us to treat it? There's no such thing as an LLC to the IRS. They're gonna say how do you want us to treat this organization? And then, that's where you check. And so, you could have an LLC taxed as a partnership, as a C corp, as an S corp. Technically you could be taxed as a nonprofit, but when you're going through your exemption process, it's gonna be a little bit of fly in the ointment, it's gonna be a little bit of a problem. And so, the answer is, yes, I can be an LLC, but don't, if you want to get your approval sooner than later, and you don't want to have a bunch of agitation, 'cause the IRS is used to seeing things in a particular way, and there's nothing that really benefits you for having an LLC taxed as a nonprofit. It's much better just to stick to what works, which is a corporation. Remember, they both don't pay taxes. So, there's no difference. The real reason people use an LLC in the world, is 'cause, it's kind of versatile, we can tax it however we want, and it supposedly has less of the formalities than a corporation. That's simply not the case. An LLC might be a little simpler as far as, hey, I don't have to have as many meetings, because I can have one later of management, but in a nonprofit, we do not have shareholders or members. We only have the board of directors, or the board of trustees. It's gonna be identical no matter what. Whether you're an LLC or corporation, so I'm gonna urge you to just go with what works. File a corporation with the state, file an exemption as a corporation with the federal government, they're used to seeing bylaws for nonprofits. There's special language we have to put in both the articles and in those bylaws to make sure that it's gonna get its approval when it files for exemption. So, let's make sure that we do that. Next thing, can an LLC apply for tax exempt status? This is brilliant, because it shows us the division between state law and federal law. The state, it's called a nonprofit entity that you file with the state. For the federal government, we're applying for an exemption from tax. So, I hope you guys see that there's a difference, from the state level and the exemption level. On the state level, we can be a nonprofit LLC, and then from an exemption level, we're treating it almost like a corporation, and we're trying to show the IRS that we should be taken serious, but we're using language that's specific only to the states. Set up a corporation, apply for tax exemption under the corporation. Technically, you can apply for exemption as an LLC. But, it's not actually as an LLC, it's an LLC taxed as a corporation. You're telling the federal government to treat it as a nonprofit organization or a tax exempt organization, but it's still an LLC. Can you see where the confusion draws in? Just be a corporation with the state, and an exempt corporation with the federal government. Next question, and this is even gonna drive this point home even more aggressively. Can a nonprofit be an S corp? A nonprofit cannot be an S corp, because an S corp is the tax treatment of a for profit organization. And so, again, with the state, I either file an LLC or a corporation, and I could be taxed either as a C corp or an S corp on the for profit sector. On the nonprofit side, I'm really gonna wanna just be a corporation, and there's no such thing as a C or an S corporation, it's an exempt organization. We don't file for S status, we don't file for C status, we file for exempt status. So, if people always say, oh, there's two types of corporations, I'd say, eh, it's actually three. There's your pays for zone tax as a C corp, there's the taxes flow through to the shareholders, or the profits and losses flow through the shareholders, which is an S corp, and then there's, nobody pays tax on it, the good old fashioned exempt organization. And then, even inside the exemption, you have different choices. You have operating foundations, private foundations, and private operating foundations. You have different flavors. You don't have to be aware of all of them. Work with a professional who takes a look at what you're proposing to do, and makes sure that it's documented right, so that you get preferential tax treatment. There is nothing better than tax exemption, period. They're, literally, the nonprofits are probably the most powerful tax vehicle that's out there. There's tons of proof. If you want to look at a few, go look at Hershey Company, Milton Hershey and his charitable trust, and exactly what it's accomplished. Hint, it started back in 1905, and to this day, it's grown, he didn't have any kids, and it's continued to, it's worth over, I think it's 12.6 billion last time I checked. But, it runs a school for orphans, it owns a museum, a hospital, a cemetery, all sorts of stuff in Lancaster County, and this was all started more than 100 years ago without any family, it's continued to grow. That's how powerful these things are. If you want to look at another one, look at Howard Hughes, and the Hughes organization. And when he started his nonprofit, he really didn't do much with it, it was a method to avoid some government issues on his Hughes aircraft, and there was questions about his sanity, and in fact, the government wanted a different owner, so he gave it to his nonprofit, managed to pocket a huge amount of tax benefit, but then, over the years, this thing, since he's passed, has grown to be the third largest nonprofit on the planet, giving over $580 million a year for medical research. I look at these things, and I say, they all share one thing in common, which is the time value of money, it grows geometrically, and if you can keep something from being taxed, it will literally take off, it's just a matter of time, mathematically, you're guaranteed to see some major money in that thing, depending on how much it's pulling out, and whether there's any more money going in. But, they're extremely powerful vehicles. But, to circle back, it can't be a C corp, it can't be an S corp, it can't be a partnership, it is legitimately a tax exempt organization. (inspiring pop music)