Why Do You Need an Entity for Charitable Work in San Diego
Why do you need an entity for charitable work in San Diego? What is the difference between an “unincorporated entity” and a “nonprofit entity” in California? If you wish to organize a group of people to raise money for charitable work and you intend continue operations for an extended time or raise more than $5,000 you should consider forming a 501(c)(3) business entity. There are practical issues, taxation matters and genuine liability risks to consider as you begin this venture.
It is possible to have an “unincorporated association” which is capable of holding assets including real property. California defines an unincorporated association as “a group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not.” So, if a few neighbors are banding together to raise money for a charitable purpose you may want to create an “entity” so that you may establish a separate bank account. After all, it can be challenging to ask for and receive gifts of cash or property for a “cause” if there isn’t an actual entity or titled identity you are working on.
Many people falsely assume there is no tax liability if the organization uses all of the funds it raises for a charitable purpose. You will owe State of California income tax on every penny you raise until you are granted tax-exempt status by the Franchise Tax Board (FTB). You may act as a non-taxable entity for IRS purposes if the unincorporated entity has less than $5,000 in annual revenues.
You should also consider issues of personal liability and the genuine risk of a dispute or lawsuit. If you are acting as an agent for any “entity” (unincorporated or not) you are exposed to a variety of substantial risks ranging in severity from liability for any injury or damages which occur as a result of activities on behalf of the entity to allegations of a violation of fiduciary duty for issues associated with the handling and disbursement of funds.
A nonprofit entity provides a structure and identity for your charitable work which allows you to seek tax-exempt status from the California FTB and the IRS. It protects you as individuals from liabilities associated with activities and risks surrounding the nonprofit entity and its works. It also provides an “identity” to your venture making it easier to conduct operations and provide incentives for others to participate.
Why do you need an entity for charitable work in San Diego? If you are committed to raising any amount of money over a period of time or seeking the donation of goods or real property you should contact the Watkins Firm or call 858-535-1511 for a free consultation to learn more about tax-exempt or nonprofit organizations and how to legally structure an organization for your charitable work.