Non-Profits   /  501c3  / Charitable Organizations / Private Schools / Tax-Exempt Entities

Most businesses are organized for the profit of the owners.    Non Profits, on the other hand, are organized for some purpose other than enriching owners.  They usually have some mission to help others. 

Did you know?  A "non profit" can in fact be organized to earn a profit - it just can't do so to enrich private individuals.   

Did you know?  A "non profit" organization can in fact earn a profit - it just can't do so to enrich private individuals.   Most of the time when people say "non profit" they really mean "charitable" and/or "tax exempt."  Not every non-profit organization is tax exempt and most must go through a process to get recognized as such. 

How do I form a Non-Profit in Maryland? 

At the beginning, the people interested in a particular charitable purpose should gather a group who will serve on the Board of Directors or Board of Trustees.  A charitable organization needs more than one person at its helm to ensure that it doesn't operate just to enrich a founder.   The Directors / Trustees then in turn usually hire officers like a President or Executive Director to manage day-to-day operations.  

Basic Steps to create a nonprofit organization in Maryland:

  • Gather a group of Trustees / Directors
  • Incorporate (file Articles of Incorporation, being careful to include necessary language and limitations to allow the organization to later seek recognition as a tax-exempt entity)
  • Create Corporate / Organizational By-laws
  • Set up Employment Accounts, etc. 
  • Hold organizational meeting
  • Register to solicit donations
  • File for federal recognition as tax-exempt
  • File for state exemption from sales tax, etc.

Naturally, an attorney will point out that good legal advice at the beginning can help avoid problems down the road!  Non-Profits generally form an entity similar to the way a For-Profit Business does:  the corporation files Articles to create the entity, with key provisions to allow the non-profit to later seek recognition as tax-exempt.  The nonprofit also needs to create by-laws and set up all of the various accounts that a business goes through (getting its EIN, setting up accounts if it will have employees, etc.)  Though a non-profit can operate in Maryland without being recognized as tax exempt, most Non-Profits want or need this formal recognition and to be recognized as Tax Exempt (whether as as a 501(c)(3) or 501(c)(4) organization) involves additional work. 

How do I apply for 501c3 status?  

The Internal Revenue Code recongizes some organizations as tax exempt.   One of the most popular types of tax exemption is found in Section 501©(3) of the Internal Revenue Code, hence these types of organizations are called "501c3" organizations.   This is not automatic for a charitable organization  -- in most cases the organization must file an application with the IRS and detail its operations.   Historically this has been a very large and cumbersome application the IRS estimates takes over 100 hours to complete!  Non-profits often benefit from professional assistance.   Recently, new law has allowed certain small nonprofits to do a streamlined application.   Arden Law Firm, LLC helps with both traditional 1023 Applications and streamlined 1023 EZ Applications for charitable organizations.    

What does it mean to be tax exempt? 

A tax exempt 501c3 has 2 key features…  it doesn't pay income tax... AND donors can receive a tax deduction...

A tax exempt 501c3 entity has two key features -- First, it doesn't have to pay tax on income it gets from its charitable purpose (for instance, a private school organized under 501c3 won't pay income tax on tuition monies it receives).   Second, donors can receive a tax deduction for any gifts they may to the organization.   In Maryland, a non-profit that has gone through the steps and obtained recognition as tax exempt for federal income tax purposes can also get relief from other types of taxes -- for instance, sales tax and property tax in some cases. 

Want to find out more?   Call Arden Law  at 410-216-7000 for more information about forming a non-profit charitable organization in Maryland.  There is no cost for the initial 10 minute phone call. 

FALL 2016 ALERT:  Because of recent changes to the IRS rules and filing fees, a very small non-profit may be able to file with dramatically less work (and correspondingly less fees) than ever before.  If you have a charitable program but don't anticipate much in way of donations or assets, ask the firm about the streamlind process!  

© ArdenLawFirm 2014-2018  Managing Attorney Cedulie Laumann, Esq.