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#1 |
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It's what you do with the surplus cash that counts. In the UK, not-for-profit organisations are allowed to keep a small surplus, but the majority must be re-invested in the company or donated to charitable causes. Check with a US accountant what the limit for retained surplus is, and stick to it! You can get tax breaks as a NFP organisation, but ideally you'd never need to use them, because you won't be making taxable profits ever. VAT will be the biggest issue, if your friend qualifies for it. NFPs get VAT relief, but of course it will depend on what the VAT is spent on/incurred in.
In the UK, I don't think there is a stipulation as you mentioned, but you'd need to ensure that the 'profits' from advertising are donated away, ideally many times a year, so you have an absolute minimum of taxable profit each year. The trouble is that much internet advertising income is from click-throughs: so it's really tough to calculate how much you'll make each month, and then donate the surplus to charities. I don't think the charities will get much the first year, because the cash paid for incorporation will lessen the potential donations, but if this business is large enough then it makes sense to declare it as NFP as soon as possible, and the charities will benefit more in the long run. Good luck to your friend, and the charities he'll be supporting. ![]() |
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#2 |
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You will have to follow GAAP, but conveniently you won't need to go overboard if the company is small or medium-sized. Many of the GAAP conventions are only optional for SMEs (small/medium-sized enterprises), so he won't need to have a zillion auditors going through the books each year-end, but I'd advise taking advice from his accountant, or employing one if he hasn't already. They will know the US accounting laws better than I do, and be able to give appropriate advice (that he can then write off against tax
![]() ![]() I used to work for an NFP, and my previous job was with a company who were looking to apply for charitable status, and I'd say that your friend should be a shoo-in for the status. |
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#3 |
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#4 |
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But since it seems to be the sole source of income for this business, then it is inextricably linked to the business. I'm guessing that the advertisers who pay this site are there because they want to be associated with the charitable donations, rather than just wanting to have themselves linked to rudepics.com, or whatever. Now I'm not suggesting that Japher's friend is hosting images that would not be welcome at everyone's favourite Civ-based family site, but that as long as there is a tangible link between the site's content and the charitable donations (ie, the advertisers know what they are paying for), then it would be very difficult to argue against NFP status.
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#5 |
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But since it seems to be the sole source of income for this business, then it is inextricably linked to the business. I'm guessing that the advertisers who pay this site are there because they want to be associated with the charitable donations, rather than just wanting to have themselves linked to rudepics.com, or whatever. Now I'm not suggesting that Japher's friend is hosting images that would not be welcome at everyone's favourite Civ-based family site, but that as long as there is a tangible link between the site's content and the charitable donations (ie, the advertisers know what they are paying for), then it would be very difficult to argue against NFP status. To determine if a business activity is substantially related requires examining the relationship between the activities that generate income and the accomplishment of the organization's exempt purpose. Trade or business is related to exempt purposes, in the statutory sense, only when the conduct of the business activities has causal relationship to achieving exempt purposes (other than through the production of income). The causal relationship must be substantial. The activities that generate the income must contribute importantly to accomplishing the organization's exempt purposes to be substantially related. It will turn on the nature of the ads, rather than the website (though, to be sure, the nature of the website matters, too). I didn't see any ads other than the "Ads by Google" links in my perfunctory check of the site, and what I saw of the Google ads probably won't make the cut (one was for supplements at GNC, e.g.). If I just overlooked them, though, and they're more of an educational than commercial type, there's a decent chance they'll work. |
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#7 |
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I didn't see any ads at all, and the Google link wanted me to advertise, or to advertise on my site. A little confused, but maybe it's only ads for US viewers. Regardless, get the opinion of an accountant, ideally one who has experience in these areas. Ringing round local practices should get you someone who knows the finer points of the law on NFPs. |
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