We are a pre-rookie team trying to form a non-profit to handle finances, as processing would be faster than running everything through our school. We are having issues starting everything up without a lawyer. Does anyone have any suggestions as to how to do this? Or is there a better way to handle money? Should we have the 501©(3) up and running before we look for sponsorships and fundraisers?
I would say 100% yes. If you want some independence you can also look into 4H
We use the school for many things, and a 501 for other things…I was involved with setting up the 501, we did not use a lawyer, but it took a while to figure out how to do it.
You do want to have a good understanding of your school’s rules about clubs, and money, and how it all works. There might be things you don’t know…maybe they have a club guidelines manual or something?
But it’s a real pain doing stuff when everything is shut down.
Mr. Forbes is a real warrior. We identified a local attorney that was sympathetic and did all the paper work for us. Waiving their fee saved us quite a bit of money. We had to pay the filing fee to the IRS but that was only about $500.
I highly suggest forming one up front if you think you’ll need to be a 501 and filing all the tax exempt forms at all of the places you are likely to buy from so that from day 1 you are not taxed. There are still too many places where I pay tax because “I’ll get to that later”
Sam’s Club (you will buy bulk food here later for events…)
Farm stores (it is amazing what you can get there for prototyping)
And all the online stores you’ll frequent. Do it all up front so you get used to it.
Thank you for the advice! What fee did you waive? What do you mean by the list of stores where you pay tax?
Sales tax…501c3 entities can be exempt from this. For example, 177 does not pay tax on our purchases through McMaster Carr - example of one vendor.
Don’t you also have to have a board of directors with meetings or something? I think we looked into it a while ago but it was a huge hassle and we just didn’t have the involvement to do it.
And more to it, if the purchases can come directly from that organization rather than being reimbursed you can shave several percent off your expenses (since the store can’t waive sales tax on “I’m buying this for Insert Exempt Worthy Cause Here”). You definitely want to set up policies and guidelines on purchasing cards, but there is a benefit to them (especially with how programs like ours spend on stuff).
Yes, we have a board of directors, and quarterly meetings, and it is a big pain. But we’ve also been able to get a bunch of donations from businesses that want to write off their donation, this lets them do it. And we have a bank card that lets us buy robot parts quickly, rather than having to deal with the (slow and ever changing) school purchasing system.
Some of this also depends on what funding you’re starting with. If you have $1,000 to get your team started, half of that will quickly be depleted with various filing fees. In the case of a low budget, consider other organizations you can partner with like others have mentioned (4H, schools, etc.). If another organization will be your 501(c)(3) for the first year or two, that might allow you some time to gain more funds. Of course, if you have a higher budget and the person-power to do it, go for it early for all the benefits laid out.
Because four adults have to get together once every three months, that was the hassle that was the tipping point for you? Our board meeting was scheduled for the ninth of this month and we were having wine! But instead we did it via Zoom. No wine. 8-(
I don’t think we could do that right now, I might look at it in the fall. Both of the teachers who mentor our team have been historically very hands off and would want nothing to do with it and although parental involvement has increased over the years(my rookie year there was zero parental involvement, the next there was 2-3 parents that would come in sporadically and now we have 2-3 devoted parents) I still don’t think it’s at a place where that would be doable, although if I might look reassess that soon. My rookie year there were only 2 core veteran members(so we didn’t have a lot of resources), now there are about 4-5 core members, we had several rookies this year, and I’m planning on hitting recruitment hard in the fall, so, who knows?
Our team is part of a 27 team conference that is a 501 c. This has a lot of benefits because potential sponsors can donate to the conference and finding can be split between teams or they can give to one team under the conference umbrella. We had a lawyer do a lot of pro Bono work to help us set it up, still took a year or so to get it done.
There is definitely a upside to having something separate from your school ( quick access to funds) but this can be done with a booster club.
Let me know if you have specific questions.
Where are you located?
For our team, the easiest way to do this was to set up a booster organization and have it qualify as a 501( c)(3) charity. The IRS makes the qualifying part very easy – they have an abbreviated application (Form 1023ez) that can be submitted online. I think they are currently processing these on a 6- to 8- week timetable (but CV is probably lengthening that). The IRS will send you a letter informing you that the boosters are qualified as a 501( c)(3) organization.
To do that, you need to have some sort of underlying organization. Where we are (North Carolina), this was easy because NC recognizes what’s called an “unincorporated association,” which we formed, then adopted bylaws. The bylaws (or your other organizational documents) have to have specific language that (a) limit the organization’s activities to “exempt” activities, and (b) provide that if the organization is disbanded, then all of its assets will go to another exempt organization. You also have to have a board of directors responsible for overseeing the booster club. (For us, right now, the board is composed of our mentors.)
Things will vary a bit by state. In your state, you might want to set up a separate nonoprofit corporation (all states allow you to do this, but what they call the corporation may differ a bit). That can increase costs, because you will need to make annual filings with the state.
Depending on how much cash your organization takes in every year, tax filing (at a federal level) is very easy – it’s a very short form that just asks some basic questions about the nonprofit and doesn’t even ask for any numbers. (Form 990N)
The process for becoming exempt from sales taxes will vary by state as well. In NC, you actually pay the taxes at the time of purchase, then apply to have the money refunded. In other states, you get a ‘sales tax exemption’ letter which you give to merchants, so you never pay it up front.
The 501( c)(3) status also allows you to obtain funding from sponsors that will only donate to qualified charities. In order to do this, you will need to give them a copy of the qualification letter from the IRS.
That’s a general overview of how the process works. It’s not difficult, but it would help to have the involvement of a lawyer who has some experience setting up businesses.
6328 created a 501c3 our rookie year that we run our team through now (we are community based). We created a resource guide on how to set one up, and I linked it below.
I can connect you with our board of directors if you have more questions - they know all the ins and the outs of the 501c3. Good luck and feel free to message me with any questions you have.
Thank you for your response! We are in Northern Virginia.
Team 4361, Roxbury NJ, created a Booster Club as a 501©3 organization.
First, do your main coaches/mentors come from the school? If so they will have to
follow the processes/rules of any other extra-curricular organization. However they
report to, we report to the school AD, should have the processes documented. We
also get funding from the school which has to follow the school purchasing processes.
We also have a booster club which is a 501©3 organization. They will need to have a charter
and/or constitution. Making them a 501©3 should not need a lawyer, but you might
be able to get one in town to donate their time to help you.
Once they are created you can use them for fundraising and sponsorships. Have that money
go through them so it is not subject to the school purchasing procedures.
Have them register with Home Depot, Lowes, Walmart, Amazon, AndyMark, Rev Robotics,
VEX Robotics, you see where I am going here, so when they make purchases they do not
have to pay sales tax. Some of the robotics vendors will allow you to be billed on a monthly
The Booster Club should create one credit card to handle all of the purchases. Reimbursements,
except for small amounts, can get tricky and create more paper trails.
Also I would suggest creating some sort of purchasing system so that two people approve the
purchase before it is made. This can be used in an audit check.
Create some sort of sponsorship contract which is signed by the sponsor and the head coach,
with the payment going to the Booster Club. Again helps in auditing.
Monthly meetings with your Booster Club board will also help in keeping the money straight.
Good Luck, this is a great program.
HC Roxbury Robotics, ROXBOTIX