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I'm involved in a hobby, and I want to collect money from corporate sponsors to run an awareness campaign. I'm getting a marketing strategy together, but before getting too far into it, I realized that there might be tax/legal implications to collecting money from companies. This will be a not-for-profit effort, and all money received will go directly towards the awareness activities -- at the end, any surplus money will be donated to an as-yet-undesignated charity.

Do I need to set up some sort of financial entity for this? A non-profit corporation or something? I really don't know how to even start this.

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Can you please specify your country? For any question with either tax or legal implications, it matters considerably. Thank you. –  Chris W. Rea Aug 29 '11 at 14:20
    
USA (I should've thought to put that - thanks for asking!) –  loneboat Aug 29 '11 at 14:24
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2 Answers

http://www.legalzoom.com/business-management/starting-your-business/turn-your-calling

Answering this, but I expect an expert to give an answer with some insight too

  1. Get an accountant familiar with not-for-profit work. Laws can be different area to area
  2. Incorporate in your state as a not-for-profit
  3. Setup a bank account

There are many more steps, but not having done them personally I suggest you read the legalzoom.com site.

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If this is something you plan to continue doing it would make sense to create it as it's own business entity and then to get non-profit status eg: 501c3.

Otherwise I'm pretty sure you have to think of it as YOU receiving the money as a sole proprietor - and file a couple more tax forms at the end of the year. I think it's a Schedule C. So essentially if you bring in $10,000, then you spend that $10,000 as legit business expenses for your venture your schedule C would show no profit and wouldn't pay taxes on it. BUT, you do have to file that form.

Operating this way could have legal implications should something happen and you get sued. Having the proper business entity setup could help in that situation.

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Do you mean 501(c)3, not 401(c)3? Section 401 deals with pensions and profit-sharing plans, while 501(c)3 is the most common type of non-profit organization. –  John Bensin Sep 12 '13 at 21:05
    
Thanks for noticing that typo John! I edited it. –  Ryan Doom Sep 18 '13 at 3:55
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