Charity Doesn’t Begin At Home

Here’s one way you should NOT go about raising startup capital for your business.

Dear Janet,

My daughter and I have been promoting events to raise money for our on-line business. We would like to know where to find information on the use of charities for tax exempt and cost-reducing purposes. We want to do these things in a legal manner, want to make money, and do not want to end up in jail. 

Thank you for your help.

–No Jail Time

Dear Jail Time,

No, that’s not a typo. I left the “No” out of your “handle” on purpose. If you’ve been raising money by telling people they are contributing to a charity, you had better talk to your attorney and your accountant fast. Unless you are a legitimate nonprofit, you could be sued for fraud.

A “charity” (or nonprofit) is what the name implies: an organization that does not make a profit for itself. Organizations that are legitimately entitled to nonprofit status raise money to fund worthwhile social causes. To qualify as a non-profit you have to first form a corporation and then apply for nonprofit status. To get it you have to meet strict requirements about how the organization is set up and how the funds are used. Raising money to start a for-profit business or trying to cut costs will not qualify you as a nonprofit.

If you were asking people for a donation to attend these events or take part in them, the “donations” are taxable income to you. Furthermore, they are NOT tax-deductible to the people who gave you the “donations.” You can get additional information about nonprofits from the IRS web site at . Your public library is likely to have books on the subject as well.

A parting thought: if you were successful in getting many people to attend events you promoted and make donations, then maybe you ought to forget the online business and start one planning and promoting events. Being able to get people to attend events and part with their money are talents worth exploiting the right way. 

Good luck!

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