By Josh Porthouse
What does 501c(3) actually mean? Or why does the IRS incentivize donations to lower your taxable income? To answer those questions, let’s first clarify what we’re discussing.
The Internal Revenue Service is a collections arm of the Department of the Treasury, which is a primary office of the executive branch of the U.S. government. In the true fashion of delegation, the Department of the Treasury handles money and finance matters for the U.S. government efforts to better society with as wide a net as possible.
Receiving approval and derivative authority from various committees on Capitol Hill, the Department of the Treasury must ensure that it can replenish its expenses. Collecting income taxes, among others, is one of those remedies.
All American citizens meeting certain criteria pay into certain projects for the greater public good, like infrastructure, education, science, or public safety initiatives. Within that framework, the federal government authorizes state governments to additionally collect taxes balanced via IRS efforts, i.e., state and federal taxes once yearly.
As we pay our taxes between January 1st and April 15th, with some exceptions into September, we are informing the various committees and subcommittees in Congress how best they can budget for the following fiscal years.
They can also better identify how money moves around the country over time to forecast better and allocate resources for federal projects and payouts. States then assume the remaining budgetary considerations. Where they fall short, they outline parameters for private sector initiatives to maintain certain aspects of society.
What does all that mean?
When an entity (an organization or an individual) pays taxes, they are, in effect, paying to contribute to the greater public good related to safety, security, and stability for the American people.
Border security becomes more apparent because U.S. government allocates and budgets off taxpayer data, not burdened cities resulting from excess budgetary burdens. When organizations offer a purpose that alleviates that burden of finance, the IRS is authorized to collect less money from those contributing individuals. The purpose of the expense has already been alleviated.
That’s what a tax-exempt status means: instead of that amount of money being counted as income for taxable purposes, it reduces the amount of taxable income for that person—the amount is exempt from factoring into income tax collection.
Certain criteria must be met and maintained for that organization to maintain that recognition as a tax-exempt entity. The IRS website specifically qualifies organizations based on section 501 and either paragraph (c)(3) or (c)(4) as nonprofit and not-for-profit entities.
The revenue taken in by the organizations as donations, grants, or other income cannot serve a private individual or private shareholder. Among other considerations to consider before applying and filing, veterans must educate themselves on the processes, properties, and potential of small businesses and nonprofit factors.
Starting points include IRS.gov, Small Business Administration, Veterans Administration, YouTube, and first-hand accounting.
The Question: What are the biggest challenges veterans face when starting a non-profit?
Answer 1: This is conjecture on my part, however, I would assume the generalized lack of knowledge of all the ins and outs, the policies, procedures, and day to day managing of that type of organization is something that most veteran’s don’t have experience with.
In addition to that, most veterans are less comfortable with the politicking required for a non-profit to be successful, as well as the other aspects of having a successful non-profit. Ultimately, I think the biggest obstacles would be that of education, familiarity, and general knowledge of the arena.
– Lee, USMC
Answer 2: Starting a non-profit can be challenging for veterans due to several factors. Veterans might struggle to navigate the complexities of establishing and managing a non-profit organization without the clear hierarchies and procedures they were accustomed to in the military.
Securing funding can be a major obstacle. Aligning with a professional who understands funding options like grants and loans is helpful, but acquiring personal knowledge of fundraising and donor relations is also important.
Veterans tend to deeply understand their community’s needs. However, they may struggle to articulate their vision and create a compelling mission statement that resonates with potential donors and supporters. A quick study of business plans and marketing will help to effectively promote their non-profit and engage with the community.
It always helps to establish partnerships and collaborations with other organizations. Most importantly, maintaining a work-life balance will help sustain the necessary energy and focus to grow their non-profit. However, veterans can overcome these obstacles with the right support and resources and make meaningful contributions to their communities through non-profit work.
– Rawlins, USAF
Answer 3: Veterans often face unique challenges due to their transition from military service to civilian life. Veterans have extensive leadership, problem-solving, and teamwork skills. Translating these skills into the nonprofit sector can be challenging, as well as fundraising, grant writing, marketing, and compliance, which may not align directly with military experience.
A strong civilian network is crucial for building relationships with donors, partners, and volunteers. Navigating complex legal and regulatory frameworks, obtaining a 501(c)(3) status, understanding tax laws, and adhering to state and federal regulations may require assistance.
Recruiting, managing, and retaining volunteers is different from leading a team in a military context. Veterans may face ongoing mental health challenges, such as PTSD, which can make the stressful and demanding environment difficult to manage.
Startups can be all-consuming, struggling to balance their personal well-being and the demands of building an organization. Nonprofits begin with a deep passion for a cause, but translating it into a clear, actionable mission may be difficult. A well-defined mission is essential for attracting supporters and guiding the organization’s activities.
As the nonprofit grows, there may be a struggle with scaling operations, managing a larger team, and adapting to new challenges while staying true to the original mission. With the right support and resources, veterans can successfully transition into nonprofit leadership and significantly impact their communities.
— D. Hinst, USN
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EDITOR’S NOTE: Josh Porthouse is currently a Marine Corps Reservist with 14 years on active duty and host of Transacting Value podcast. As a Team FireWatch Veteran Voices Contributor, Josh works alongside other veterans to bring a personal perspective to relevant topics for today’s active-duty and veteran service members.
Contribute your voice! Send your story to us at VetVoices@FireWatchMagazine.com. Submit topic ideas or answers to past questions and join the conversation at #vetvoices.