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The Pros and Cons of Starting a Nonprofit

Before you jump headfirst into making your nonprofit dream a reality, you need to understand some basic facts about nonprofit organizations. Let's begin by taking a look at some of the pros:

  • You'll receive exemption from taxes on most income to the nonprofit.

  • For some types of nonprofits, you'll have the ability to receive contributions that are deductible for the donor.

  • You'll gain the opportunity of receiving grant funds from foundations and corporations.

  • You'll get the feeling that you're contributing to the solution of a problem or to the improvement of society.

Just about everyone would consider these facts to be positive, but they aren't the whole story. If you're thinking of starting a nonprofit to get rich or to avoid paying taxes, consider the following list of cons:

  • Nonprofit employees' salaries are subject to income tax like all other types of compensation.

  • You'll be required to file an annual report with the Internal Revenue Service (IRS). The complexity of the report increases as your nonprofit income increases.

  • You can't start a nonprofit organization to benefit a particular individual or family member.

  • Competition for grants from foundations, corporations, and government agencies is tough, and so is getting donations from individuals. You'll be up against more-established nonprofits with successful track records.

  • If you decide to move on to other pursuits down the road, you can't take any assets accumulated by the organization you've built with you.

The bottom line is this: Think carefully about your motivation for launching a nonprofit organization. Remember that nonprofit organizations are permitted special privileges because they're formed to benefit the public, not individuals.

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