Here's a good description of what a non profit is. If it's not what you do with your race car you shouldn't do it.
Definition: A business organization that serves some public purpose and therefore enjoys special treatment under the law. Nonprofit corporations, contrary to their name, can make a profit but can't be designed primarily for profit-making. .
When it comes to your business structure, have you thought about organizing your venture as a nonprofit corporation? Unlike a for-profit business, a nonprofit may be eligible for certain benefits, such as sales, property and income tax exemptions at the state level. The IRS points out that while most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit at the state level doesn't automatically grant you an exemption from federal income tax.
Another major difference between a profit and nonprofit business deals with the treatment of the profits. With a for-profit business, the owners and shareholders generally receive the profits. With a nonprofit, any money that's left after the organization has paid its bills is put back into the organization. Some types of nonprofits can receive contributions that are tax deductible to the individual who contributes to the organization. Keep in mind that nonprofits are organized to provide some benefit to the public.
Nonprofits are incorporated under the laws of the state in which they are established. To receive federal tax-exempt status, the organization must apply with the IRS. Two applications are required. First, you must request an Employer Identification Number (EIN) and then apply for recognition of exemption by filing Form 1023 (Charitable Organizations) or 1024 (Other Tax-Exempt Organizations), with the necessary filing fee.
The IRS identifies the different types of nonprofit organizations by the tax code by which they qualify for exempt status. One of the most common forms is 501(c)(3), which is set up to do charitable, educational, scientific, religious and literary work. This includes a wide range of organizations, from continuing education centers to outpatient clinics and hospitals.
The IRS also mandates that there are certain activities tax-exempt organizations can't engage in if they want to keep their exempt status. For example, a section 50l(c)(3) organization cannot intervene in political campaigns.
Remember, nonprofits still have to pay employment taxes, but in some states they may be exempt from paying sales tax. Check with your state to make sure you understand how nonprofit status is treated in your area. In addition, nonprofits may be hit with unrelated business income tax. This is regular income from a trade or business that is not substantially related to the charitable purpose. An exempt organization with $1,000 or more of gross income from an unrelated business must file Form 990-T and pay tax on the income.
If your nonprofit has revenues of more than $25,000 a year, you must file an annual report (Form 990) with the IRS. Form 990-EZ is a shortened version of 990 and is designed for use by small exempt organizations with total assets at the end of the year of less than $25,000. Form 990 asks you to provide information on the organization's income, expenses and staff salaries that exceed $50,000. You also may have to comply with a similar state requirement.
