In simple words, the answer is yes, you can. Typically, organizations without 501c3 status are unable to apply for grants. But there are several ways to legally receive donations to secure funding for operations and fulfill community missions.
Individuals and companies donating to a 501c3 public charity can deduct up to 60% of their AGI. The IRS has rules regarding 501c3 donations. In this article, we’ll help clarify questions you may have about donating to and from a 501c3, along with exemption restrictions and passthrough donations.
Ways to Receive Donations
So we’ll talk about the 4 best ways to accept donations without being a nonprofit, also applicable to a nonprofit without 501c3 status:
1) Crowdfunding
2) Donate button
3) Having a fiscal sponsor
4) GoFundMe
Filing Form 1023-EZ is a simplified way to apply for 501c3 status. It requires assets under $250,000 and revenue under $50,000 for the current and next two years. An organization cannot claim tax exemption while its Form 1023 is pending.
If your unincorporated group has a fiscal sponsor, it can accept donations without owing income tax.
Better still, with a fiscal sponsor like ioby, your donations can be tax deductible! Fiscal sponsorship helps unincorporated groups simplify taxes and offer donors a tax break.
Frequently Asked Questions (FAQs)
Can I accept donations while waiting for 501c3 status? A charity can accept donations as tax-deductible while it awaits its letter of determination. For the exemption to hold up, the IRS must make the actual determination that the entity indeed qualifies for the 501(c)(3) status.
Are all 501c3 charities? Section 501(c)(3) is the portion of the US Internal Revenue Code that allows for federal tax exemption of nonprofit organizations, specifically those that are considered public charities, private foundations or private operating foundations.
Can you write off donations to a 501 C 3? You may be able to claim a deduction on your federal taxes if you donated to a 501(c)3 organization. To deduct donations, you must file a Schedule A with your tax form.
How fast can you get a 501c3? The average processing time for Form 1023-EZ is about 2-4 weeks. By contrast, Form 1023 can take between 3 and 6 months for processing, and it could take up to a year.
What taxes does a 501c3 pay? Nonprofit organizations are exempt from federal income taxes under subsection 501(c) of the Internal Revenue Service (IRS) tax code.
Generally, it takes several months for the IRS to process 501(c)(3) applications. If a nonprofit’s application for 501(c)(3) status is approved by the IRS, donations made while the application was pending may be retroactively deductible.
Substantiating Donations. Organizations with pending 501c3 designations cannot accept payments in the form of volunteer time or other intangible donations. Donations must be made in the name of the organization as well, rather than an individual name. Ask donors to write a check or make a cash donation. You can accept donations as a check made out to the business or the organization that coordinates with the name of the business or organization on the checking account.
Write a donation receipt. You can use a pre-made donation receipt form or create your own donation form on your computer or with a pen and piece of paper. Write the name of the organization accepting the donation, the donor name, the donation amount, the date of the donation and the form of donation.
In 2014, the IRS introduced a shortened version of the application, the 1023-EZ, which greatly reduces the amount of paperwork involved with a 501(c)(3) application. There are certain cases where your organization is not required to apply for 501(c)(3) status. According to the IRS: Except for churches, their integrated auxiliaries, and public charities whose annual gross receipts are normally less than $5,000, organizations will not be treated as described in section 501(c)(3) unless they notify the IRS by applying for recognition of section 501(c)(3) status. Unless your organization meets these criteria, you must apply for nonprofit status.
Here are the steps you must follow and resources to help you along the way to accepting nonprofit donations. State Application.
If you are 100% sure of getting your 501c3 status (we have a 100% success rate after more than applications over years), you can open a bank account, accept donations, and begin operating as soon as your Articles of Incorporation are filed in your state. However, if you fail to achieve 501c3 status for any reason, there will be no such retroactivity, and those donations you accepted will be disallowed by the IRS.
Important: Forty states have charitable solicitation registration, and you may be required to file with your state before soliciting donations.