Seems like one of the biggest benefits of 501c3 status is tax savings. To those of you who are NOT a registered non-profit,ie NOT tax exempt, how do you report your state income tax and federal income tax and any sales taxes to your membership?
Are these simply line items under 'expenses' ? Thanks!
One clarification - state sales tax exemptions are determined by state law and vary from state to state. Becoming 501(c)(3) does not automatically make you exempt from that. Check the rules in your state. You may have additional paperwork to file. (Phil - I think you were getting at this, but someone might misunderstand.)
And note - even if you do get a sales tax exemption, you have to find out what that means in your state. You may still have to pay some sales tax. In our case (Texas), sales tax exemption means we can avoid tax on things we buy for use in the PTO and we can avoid tax we need to collect on two major sales fundraisers per year. But we still have to collect/remit sales tax on other items.
First, the organization does not need to pay income (Federal or State) taxes on money raised. There is a Tax-Exempt form that needs to be sent to the IRS (and to the State), but you keep the money you raise.
Second, donations made to the organization are often tax-deductible to the donor. This not only helps the parents who support the PTO, but also allows most businesses to provide donations too (many large businesses won't donate without 501c3).
Third, not only is the organization exempt from income taxes, it is alse exempt from state sales tax. The degree to which this is an advantage - and the amount of paperwork required to avoid the sales tax - varies from state to state.
The key piece of the IRS language is below. In this legal sense, I believe inure to means "to take effect, or to benefit someone".
The organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of an IRC Section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization...
However, the poster who meantioned common sense is right. Don't twist this out of proportion. There are lots of people who benefit from the PTO (students, teachers, even the public) - in the way that the PTO was intended.
General ethics and conflict of interest policies also come into play.
Regarding the fundraising rep, if the Board member uses their position with the PTO as an unfair advantage - of course that's not right. But if everything is properly disclosed and the opportunity is offered equally to others, the member has no say in the proceedings, and that parent is deemed the best choice - it might be okay. (However, usually you lean on the conservative side if it's a leader in the organization to even avoid the perception of wrongdoing.)
A good application of common sense and ethics should see you through to the right answer.
