The first rule of a non-profit organization is that the founders work on a zero profit basis. Take note that non-profits have founders, not owners, who work for some non-profit purpose like education, charity or something related to religion. These people are also exempt from taxes as long as their activities and earning is based off such non-profit purpose.
Does this mean non-profit founders earn nothing? Well, that’s not true. There are certain ways you can earn money while running a non-profit business that is exempt from taxes too.
Earning from ‘related’ activitiesNon-profit businesses do have expenses that they need to cover. Therefore, these businesses and organizations are allowed to hold certain activities that are related to the purpose of the non-profit. The earnings from these activities is tax exempt because it is these earnings that the organization survives on. Therefore, such related activities that in one way or another serve the purpose of your non-profit business can be your source of earning profits. These earnings can be used to cover business expenses and pay employees but cannot be distributed among business or organization directors or officers. These activities may also include things like a gift shop that serves the patients of the hospital, or a bookshop meant for people of the education institute.
Conduct ‘unrelated' activitiesSome non-profits earn from unrelated activities. These are events that do not have any connection with the purpose of the non-profit. However, the earning from this source is not tax exempt. This source is a good way of earning a decent amount of money but this can somewhat ruin the non-profit's reputation. Once you start conducting events for the purpose of earning money rather than for serving the purpose of your non-profit, you start to develop an image of a regular business. If you do end up conducting such an activity, try to get volunteers instead of paid staff for the event. It will minimize your cost of paying employees and also increases chance of getting a tax exemption.
FundraisingPeople donate huge sums of money for charitable causes. Conduct fundraisings to collect money for bearing the costs of running your non-profit. Sometimes, the funds collected are enough to fulfill your costs as well as bring net earning. Create an expenditure balance sheet to calculate all your costs. Then compare it with your income which includes donations as well as money from activities. After deducting your costs of running the non-profit and pays of the employees, you can still have a surplus amount which will be your net earning. Since these earnings are all part of tax exempt collections, your net earning is tax free too. Make sure the net earnings are distributed back into the organization to further its’ cause and not into anyone’s pocket.
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