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I am considering forming a business for a charitable purpose. We already have a website and Facebook page to get people to spread kindness for our cause. We'd like to start accepting donations and doing acts of kindness as an organization. I understand that a nonprofit will allow donations to be tax deductible but it seems like there is a higher cost and much more paperwork to fill out. Is an LLC an easier solution? I'm concerned that with an LLC I will have to pay taxes even tho we will not be making a profit.

Were thinking of just running one event (toy donation drive, 5k, etc..) per year at this point.

How do I figure out the best way to do this?

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  • LLC and non-profit aren't two sides of a coin. You can have an LLC that is a 501c3... But yes, having a charitable organization, if you want to avoid paying taxes, requires much more paperwork than just a typical business, and is pretty much required if you want to be able to pass the tax shelter along to your contributors (they can write-off donations to 501c3's, but not a normal LLC). – Ron Beyer Nov 14 '20 at 12:17
  • Interesting, I thought I read that an LLC can't apply for 501c3 status. How do you decide whether to be an LLC or a corporation when you plan to go for the 501c3 status? – liebs19 Nov 14 '20 at 14:00
  • An LLC is totally unrelated to anything. An LLC is literally identical to simply trading as your name, Joe Smith, except you're allowed to use a "company name" (like "Excellent Software"). There is absolutely no other difference. – Fattie Nov 14 '20 at 16:26
  • @RonBeyer, an LLC can't be a 501c3. See incnow.com/blog/2018/07/11/can-i-form-a-non-profit-501c3-llc. – gaefan Nov 14 '20 at 17:12
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    @Fattie, an LLC can be identical to trading as your name for income tax purposes, but there are other very important differences. Otherwise, people wouldn't bother paying annual fees for them. – gaefan Nov 14 '20 at 17:14
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I understand that a nonprofit will allow donations to be tax deductible but it seems like there is a higher cost and much more paperwork to fill out.

A non-profit and a charity aren't the same thing.

A non-profit is a business or organization that is designed to not make a profit. A charity is an organization that is allowed to accept donations and have their donors write-off their contributions.

For example: A credit Union is a non-profit specifically a 501(c)(1); but it isn't a charity which would be a 501(c)(3) organization.

So you have to decide if you want to be a non-profit or a charity. But if you want to accept tax deductible donations you will have to take the further step to be a charity.

This step as you have discovered isn't trivial.

If you are going to only do one event a year it might be better to find a charitable partner. People work with homeless shelters, blood banks, veterans groups, and food pantries to raise money. You would advertise the event, and provide volunteers and an existing charity would benefit. They should have a coordinator to provide you with all the information you need.

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  • I am 100% not looking to make a profit off of this. My #1 goal is to separate this from my finances and not have to pay taxes myself. Would an LLC meet those needs? The tax shelter for donors seems nice because it's may get us more donations but I'm not sure it's 100% necessary for my goal. – liebs19 Nov 14 '20 at 13:58
  • Let's say I take your last advice (which I think I will) and host an event for and existing charity. Should I have an LLC or something like that to keep the finances of this event separate from my personal finance? Is there value in that? – liebs19 Nov 14 '20 at 21:03
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My #1 goal is to separate this from my finances and not have to pay taxes myself. Would an LLC meet those needs?

No.

To be brief, unfortunately this question totally misunderstands what an LLC is.

It would be beyond the scope of a QA site to offer a from-scratch explanation.

The other question:

How do I figure out the best way to do this?

Setting up charitable organizations is a HUGE amount of work and is not possible without professionals on board.

Were thinking of just running one event (toy donation drive, 5k, etc..) per year at this point.

Unfortunately the answer is there's no way, simple enough, to allow for a small scale of good works.

(User MHoran has given the superb answer: use a charitable partner.)

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  • Thank you for your input! This validates what I was getting when I started digging into this. Others were like "just start an LLC or Nonprofit" but I've I started digging in it seemed much more complicated than that! – liebs19 Nov 14 '20 at 21:01
  • hope it helps! Suggest, as a new user tick some answer, as you get points and hence Easy Access to asking more questions. good luck! – Fattie Nov 15 '20 at 15:15

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