Two tips for new nonprofit organizations

There are more than a million nonprofit businesses in the U.S. with more every day. State requirements that new cannabis companies be in nonprofit form bring more attention. Yet most nonprofit organizations are small volunteer-driven businesses with small budgets. They still need to make smart business management decisions, beginning with the business start-up. Starting out right can pay off in immediate savings of time and money.

1. Understand tax exemption requirements before you apply.

Applying for tax-exempt status is time consuming and costly. Consider these three examples:

a. Last week I learned of a small church that caused themselves unnecessary problems by applying when they were not required to do so.

b. IRS denied tax exempt status to a state registered charity that provides medical cannabis to low income patients. The organization failed to consider that this is not a permissible federal purpose.

c. The Satanic Temple of Salem, Massachusetts was granted federal tax exemption because they met all IRS requirements.

In all three cases, the outcome was dependent on experienced help (or lack thereof). Know the rule before you apply.

Understand that both federal and state laws apply, depending on your business.

2. Choose your bank wisely

Many nonprofit labor hours are wasted dealing with banks that are a poor fit for the size and activity of the nonprofit. The right bank, linked electronically with the accounting system, can make management a breeze. A mismatch can be a nightmare.

Far too often the nonprofit founders choose a bank they already know and trust rather than getting help to learn about banks they don’t know that are a better fit for the new nonprofit business.

Most banks do not provide services to businesses in the cannabis industry, even the state-licensed nonprofit businesses in New Jersey.


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