What are the disadvantages of forming a tax-exempt nonprofit?
Your nonprofit income activities will be in most part restricted to the stated purpose of your tax-exempt basis. Income from sources unrelated to the purpose of the organization will be taxable. If this unrelated income starts to become a substantial portion of the income earned, this could attract attention from the IRS and prompt a reconsideration of the 501(c)(3) tax-exempt status.
Your nonprofit income activities will be in most part restricted to the stated purpose of your tax-exempt basis. Income from sources unrelated to the purpose of the organization will be taxable. If this unrelated income starts to become a substantial portion of the income earned, this could attract attention from the IRS and prompt a reconsideration of the 501(c)(3) tax-exempt status. Additionally, you will not be able to benefit from the value of any assets of the nonprofit corporation. All assets of the corporation must be dedicated to tax-exempt purposes. Upon dissolution of the corporation, all assets must be distributed to other 501(c)(3) corporations. Furthermore, payments of dividends to shareholders or payments of profits to directors, officers, members or staff are prohibited, however reasonable salaries are allowed.
