How to Start a Charity in NJ: Everything You Need to Know
When learning how to start a charity in NJ, you first need to register your business as a nonprofit organization.3 min read
When learning how to start a charity in NJ, you first need to register your business as a nonprofit organization. You do this by:
- Incorporating your business in the state of New Jersey.
- Applying for 501(c)(3) tax-exempt status.
- Getting New Jersey corporate business tax exemption.
- Filing for New Jersey sales and use tax exemptions.
- Registering your business with the Attorney General.
Beyond this, you must submit annual filings to the Treasury Department and the Internal Revenue Service (IRS). If you have employees, you will also need to register with the Department of Revenue.
It's best practice to apply for nonprofit status within 27 months of incorporation. The IRS will notify you by letter whether it has accepted your application or if it needs more information from you.
Characteristics of a Nonprofit
A nonprofit is just another form of business. This means, like any other business, you need to bring in more money than you spend. Also, you need to have a business plan so you know where you are getting money from and where you are spending it.
Being a nonprofit does not mean your business cannot make a profit. It means that, according to IRS rules, the only way people employed by a nonprofit can benefit financially from the business is through their salary.
Salaries tend to be small with nonprofit startups, with some CEOs choosing not to take a salary at all. As the corporation grows and becomes more complex, CEO salaries can grow to healthy levels.
Most nonprofits raise funding through government grants, foundations, and private donations. Many also charge some kind of fee for their services to help cover costs.
Whereas small for-profit businesses can keep their financial records private, nonprofits' tax records are public. Anyone can read the tax forms of any nonprofit to find out its revenue, expenditures, and even salaries.
Nonprofits are never privately owned; they belong to the community. Nonprofits also can't be sold. If you ever have to dissolve your nonprofit, you will disburse its assets to other nonprofits.
Board of Stakeholders
Every nonprofit must have a board of community stakeholders. Their function is:
- To help raise money.
- To hire staff.
- To direct the business.
- To meet goals.
You cannot invite personal friends or business partners to be a part of the board.
Private foundations are normally established around charitable, educational, religious, scientific, or literary causes. They are funded by a single person, family, or business and do not engage in public fundraising.
You do not have to be extremely wealthy to start a foundation. According to the IRS, there are more than 91,000 private foundations in the U.S. Of those, 66 percent have assets less than $1 million. You can start your foundation with as little as $250,000 and build it over time.
Any contribution you make to a foundation is tax-deductible. Every year, the foundation must pay out 5 percent of last year's net average assets in qualifying distributions. These include both charitable donations as well as some administrative expenses.
Some of the benefits of a foundation:
- Give whenever you want to, and get a current-year tax deduction.
- Keep full legal control over the running of your foundation, including its assets and spending.
- Create a legacy that will associate your family name with doing good.
- Employ family members, and pay back expenses related to the foundation.
- Raise future generations with positive values and skills.
- Give tax-deductible grants to people in need.
- You do not need to set up a separate nonprofit to run charitable programs.
There are few restrictions on what your private foundation can do, as long as those activities promote a charitable cause. It can also:
- Grant money to people in times of economic hardship or needing disaster relief.
- Loan money that is paid back to the foundation.
- Establish scholarships and award programs and decide to whom they are awarded.
- Give money to international organizations.
- Donate money to for-profit companies, provided it is for a charitable cause.
- Run charitable programs of its own, such as coat drives and soup kitchens.
If you need help starting a charity in NJ, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.