Working the Non-Profit Status
Taxation is a wonderful, necessary part of our society. However, when you are a small organization pursuing altruism, you may be able to minimize your taxation so you can spend more on your members. Especially for large donations, your chapter can save a lot of money. The IRS is a magnificent but complex beast, so there are things you should be aware of as you raise and spend money.
Will taxation affect my chapter?
Probably not. For chapters that exist as a regular university or school clubs, you shouldn’t have to worry about this at all. Most universities have programs to create bank accounts for student clubs, and if your expenses are a reasonable amount you should never have to leave the confines of these programs that takes care of everything for you. You should only worry about non-profit status if you are receiving large, external donations or if your organization is far bigger than a regular student club and the university programs are starting to be limiting in how they can help. If you do not come under those two categories, it would probably be better to stay as part of the university club infrastructure since it reduces the overhead you must complete as a club. This overhead being how SEDS USA can help you with SEDS USA's non-profit status.
Do Chapters Come Under SEDS USA’s Non-profit status?
SEDS USA has 501(c)-3 federal non-profit status in the US, meaning it does not have to pay federal or state taxes. However, that doesn’t mean that SEDS’ chapters also come under this status. This is because of legal liability. If chapters were to also count as non-profits under SEDS USA, then by extension SEDS USA would be liable for anything that happens within chapters too. To protect the national organization, we do not offer our non-profit status to chapters to use as they please.
However, SEDS USA can still utilize its non-profit status to help its chapters. If your chapter wants to receive a large donation, SEDS USA is here to make sure your chapter receives as much of the donation as possible. In this situation, SEDS USA can receive the donation from the donor directly. Then, we will send the same amount to the chapter in the form of a chapter grant. That way, your chapter will receive the full amount of the check without having to worry about taxation. If you have any specific questions or need to do this, email the treasurer and they will be able to help you through the process.
Whenever a large donation is coming in such as sponsorship for a rocket you plan on launching, companies or individuals that donate this money can write the money off on their taxes if they donate to a non-profit. With this being said, companies oftentimes will prefer to donate money to non-profits because it costs them quite literally nothing. To write these donations off of their taxes however, they need proof they are donating to a non-profit and they will need the organization's tax id number. With all of this being said, each chapter does not have any tax id number without applying for a non-profit status as a club.
SEDS USA, on the other hand, does have all of these prerequisites in a federal form called a W-9. Large donations that need to use the tax-exempt status and proof that you are a non-profit would have to give the money to SEDS USA. The treasurer of SEDS USA would need to be included in the emails regarding getting the sponsorship, where they could send the company an invoice and the W-9 form. Once SEDS USA has the money, we as a non-profit can then write a check as a grant to the club which would not count as taxable income, and therefore allow the club to get the most money possible, as well as keep the donors happy in that they lost no money.
Applying for your own non-profit status
Applying for non-profit status is surprisingly simple. There are two types of non-profit status: state and federal. State non-profit status exempts you from state taxes, and federal tax-exempt status exempts you from federal taxes (Governments don’t mess around when naming things). Each program costs money to apply. State applications differ state by state, but for North Carolina, the cost is around $60. For federal tax-exempt status, it costs around $250. Beyond this, it would be best to get help from an organization more qualified than us. There are a plethora of resources about starting your own non-profit, helping you through each step. We would recommend that you do an in-depth search yourself for the state you’re in, but the link below could be a good starting point for starting a federal non-profit.
Point of Contact