A lot is known about donating and charities, but very little is known about the tax code. Not surprising in our current complicated state of affairs.

In order to help out our supporters and fulfill our vow of transparency, we wanted to provide an entire page explaining this, in simple terms.

501(c)3 Corporation

In order to be a 501(c)3 business one must be a corporation and a non-profit. Establishing a corporation is a business choice and comes along with “corporate rules”. It is a choice because there are several types of business that can be established, each one coming with its own rules. For a corporation, in general, these rules require things like a Board of Directors, ByLaws, a President/Vice President/Treasurer. In it’s simplest form it defines the structure of the corporation and who runs it. In its complex form it establishes fiscal and legal liability according to the common practices of the United States legal and IRS code.

Establishing a non-profit also has its own rules. The most important one centers around profit taking. In this area I want to highlight two important points: a person can never take profits out of a non-profit, nor can they take profits out when selling or dissolving the non-profit.

So, a corporation that is a 501(c)3 follows the rules required for corporations while also abiding by the rules of non-profit.

A Clean Life is a 501(c)3 non-profit corporation and your donations are tax deductible.

Purposes

The purposes of 501(c)3 corporations are strictly defined but loosely applied. This means that clear and distinct boundaries are set that allow for a broad application of uses (from support for international famine to trade memberships). Every corporation looking to receive a 501(c)3 distinction must serve one or more of the following purposes:

• Religious, Educational, Charitable, Scientific, or Literary purposes.
• Also:
  • Testing for Public Safety
  • To Foster National or International Amateur Sports Competition
  • Prevention of Cruelty to Children or Animals Organizations

A Clean Life has established as its purpose educational, charitable, and scientific work.

Tax Exempt

This section is probably the most important to the average person, but placed third so as to give you an overall understanding of this process and to give you security and confidence that money being donated is closely regulated.

First, and most important, not all non-profits are tax exempt. You can be a non-profit and not be a 501(c)3.

Second, those that are tax exempt do not themselves pay the tax man. Neither will you for your donation. It is very important to look for 501(c)3 status before donating any money to a non-profit.

Third, the IRS requires that any corporation operating as a 501(c)3 is required to tell the community that they are. This can be through placing that information directly on their website and printed materials. Also, through providing official documentation when asked.

A Clean Life has applied for 501(c)3 status and is currently tax exempt and your donations are tax deductible.

Receipts

The IRS requires that for any donation over 75 dollars the person receives a written receipt containing appropriate informations (date, amount, name of non-profit, etc). This is largely due to older methods that required paper mailings to deliver receipts. In today’s world we have the ability to email receipt for no cost and many non-profits are doing so.

Another requirement is that any services or goods received in return for a donation must be substracted from the donated amount. For example, if you donate 50 dollars to attend a charity event, but receive two drinks tickets worth ten dollars, then your donated amount is 50 subtract 10, 40 dollars. That is the amount ($40) that the IRS will allow you to deduct. This information is also required for donations, but only for amounts over 75 dollars, though many corporations are doing so through email for lesser amounts.

A Clean Life looks to provide receipts for all donations. Further, we will (to the best of our ability) maintain all of our receipts and provide it to you, should you need it (say around tax time).

Organizing Documents

To start a corporation several steps are needed. Each one is a milestone by itself. The official documents that result from these important steps are referred to as organizing documents.

Here are ours, with a brief description of each:

Articles of Incorporation (doc) – these are just a few pages form the foundation for the corporation, laying out some important legal principles.

ByLaws – a long series of articles that go into deep detail on the legal operations of the corporation. These include our famous “preamble to a vision” and our conflict of interest.

Meeting Minutes of First Board Meeting – includes the typed notes from the meeting and the entire audio of the meeting.

Resources

California Exempt Non-Profit Tax Forms