It doesn't matter that you only make $5000 or even $15,000 and then spend it on the PTO projects. What matters is that you hold a fundraiser or money generating event of some type.

If that fundraiser/event brings in more money that it costs to put on, then you have earned a profit. And, since you are a non-profit, you owe taxes on that profit.

I would definitely check with your state PTA about the actual costs of dues, insurance, etc. Then check with a tax professional about what the taxes are. You maybe surprised that being a PTA in the end would be cheaper.

Also, while getting the 501(c)(3) might be costly initially, it too, will probably be less than paying taxes over time.

While being a PTA has other benefits it also has as many downfalls in my opinion. The first one being paying, what many consider, larger dues to support the PTA. If funds are all ready tight adding in a required yearly bill, unless you are certain to get that amount or more back through donations, etc. isn't good money management.

Most everything else that I am aware of that PTA provides can either be found through sources like this, through collaboration with other PTO's, or are items that a a majority of people aren't interested/wouldn't support anyhow. That is my experience at least!

First a 509(a)(3) makes no sense here. There'd have to be a 501(c)(3) that the 509(a)(3) supports, and that wouldn't be your school.

Instead, you can find a fiscal agent with a 501(c)(3) designation that could take in the funds, issue 501(c)(3) receipts, and then donate them to your school. A local community foundation might be able to be such a fiscal agent for you. Or you could create an organization under a 501(c)(3) "umbrella." Your state probably has a statewide PTA (parent teacher association) that acts as an umbrella for the individual schools PTA's. I'd vote to create a PTA. It has other benefits.

Thanks for the clarification. We "raise" less than $15000 per year. It is probably more like $5000. That money is then spent on school activities like teacher training workshops or financial assistance for children who could not afford to go on field trips etc. Very small operation. Mostly, we just raise enough money to afford a particular activity. We do host book fairs, but we take our profits in the form of books for the school. As I said, the school will continue to grow so I am wondering what foundation we should lay in place now. We couldn't afford the 501(c)(3) process right now even if we wanted to go down that road.

The easy answer is that the 509(a)(3) is determined in conjunction with the 501(c)(3) (it has to do with your classification as a public charity as opposed to a private foundation).

As to whether applying is worth it--there are probably two critical factors to consider.

1) If you're not tax exempt, you're supposed to be paying taxes--income and most likely sales. How much? Depends on how much revenue you have--maybe you're too small to even qualify. If your revenue is high enough to qualify for filing, then it depends how much you have in expenses to offset the revenue. State tax laws also need to be considered.

2) Some companies will not provide donations to you unless you are a 501(c)(3) organization. If you want to rely on donations for the bulk of your revenue (as opposed to product sales), people cannot deduct the donations on their tax returns if you are not a 501(c)(3); that may make a difference to them.

We are a small urban public school in our third year. We have taken huge strides in becoming more organized this year and I am very excited about our future, but we are still getting our sea-legs, so to speak. We currently house only 3 grades but we will add a grade each year so we will eventually be a 6-12 school with 600 students. Does anyone know the ins and outs of 509(a)(3) versus 501(c)(3)?

The cost of becoming a 501(c)(3) is prohibitive for our economic situation and our banker felt it would really not be worth it for us. (His daughter also attends our school, so he does have our best interest in mind). Can anyone give me a crash course in the difference so that I can bring the info back to the board? I know you will all probably urge us to go the 501(c)(3) route but we have investigated the cost and I don't believe I can justify it to the general membership with all the other more pressing needs we have. I ran across an article referring to 509(a)(3) and wondered what it was. Is it an alternative to or is it in conjunction with 501(c)(3)? Thanks in advance.