Comment by bradleyland | Hacker News Reader

Comment by bradleyland | Hacker News Reader

I'd like to offer a correction/clarification. My intention isn't to point out that you were wrong, but to prevent someone else from getting the wrong idea.

You said that you decided to form this corporation as a not-for-profit [assuming this was a 501(c)(3)] because: "a project of this sort could only generate so much revenue," and "since it was my first major project, it only made sense to start somewhere small and make the organization non-profit."

The revenue generating capability of an organization is not something you consider when you decide to go not-for-profit. There are non-profit organizations that receive hundreds of millions of dollars a year in income. Non-profit organizations can make a little or a lot, it doesn't really matter.

The size of a corporation also has little or nothing to do with whether or not you should structure your company as a not-for-profit. Examples of some large non-profits are:

Org (2010 revenue) Mayo Clinic ($7.9 billion) United Way ($3.84 billion) American Cancer Society ($926 million) National Red Cross ($3.21 billion)

Not-for-profit organizations have many strict limitations on their method of operation. Everything from funding to salaries are limited in some fashion. You typically opt to form a not-for-profit corporation when you are forming a charity that you want to protect from becoming a profit motivated enterprise once you've moved on.

You make a really good point. But as I mentioned in the article during my research process I found that for tax purposes if you keep the gross receipts of a non-profit below $5,000/year you automatically get 501(c)(3) status and the process of filing taxes is very straightforward. Before the Pension Protection Act of 2006 non-profits that made less than $25,000 weren't even required to file annual tax returns. Regardless, I wasn't expecting to make more than $5,000/year anyway.

Basically, since it was my first major project and I wasn't expecting to make more than $5,000/year non-profit seemed to be the way to go.

Heavily edited

Ok, so my wife is around now. She's a CPA/PhD in accounting and does a lot of work with small businesses, so I suppose she knows what she's talking about. While non-profits are not her specific area of study, she does do the accounting work for a couple of local non-profits. She's never steered me wrong yet:)

So that said:

The $5000 exemption you reference does not alleviate you of the other requirements for operating a 501(c)(3). More specifically your company must operate for a specific "exempt purpose" (http://www.irs.gov/charities/charitable/article/0,,id=175418...).

If I'm following the article correctly, you wrote an iPhone app that does not fall under any of those exempt purposes. Therefore, even operating under the $5000 receipts limit, your company is not eligible for 501(c)(3) tax exempt status.

Any income that you made from the app should be treated as personal income. You don't even need to form a business entity to do business at all. You can take that $5000 and declare it as personal income just like any other income you make throughout the year. That does open you up to increased liability, which is why LLC's have become a preferred vehicle for proprietorships and partnerships. In most states it's nothing more than a very short form and $25-$100. It grants you some protection for your brand as well as limiting your liability in certain situations (for instance, it provides a shield to your personal assets for lawsuits around copyright infringement).

Thanks for asking your wife :). I'll keep that in mind next June because 2010 was our first "profitable" year.

We have a tax-exempt purpose— it's charitable. We're actually raising money to build computers for remote villages in North India and donating the rest to a blind school. The iPhone app is just a means of fundraising.

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