It’s common sense that the right type of organization to run community events to benefit the public is a non-profit, but it’s not really clear what both direct and indirect costs are. One of the benefits of a registered 501.c.3 like our Data Driven Technologies, Inc. is not paying any Federal/CA State income taxes which gives an impression that it’s free. Let’s attempt to clarify and effectively debunk the idea that the cost of running a non-profit is zero.
Perhaps now, after 4-5 years of running a non-profit in California, we can clearly see what direct and indirect costs are as well as startup vs. ongoing costs. The following is neither tax nor legal advice. Just our personal experience and observation.
CA Secretary of State+CA DOJ Charity Registration+IRS+Bank+Credit Card Payment Gateway
Using SwiftFillings.com allowed us to complete all the initial fillings with CA Secretary, CA DOJ, IRS, all in a 1-2 hours
Once we received an EIN and IRS letter of determination, we started to look for a bank that offers a free checking account. Finding a bank that is willing to open a free checking account for a non-profit took at least 3 trips to 3 different banks with about 4 hours spent in total
Indirect cost = 4-5 hours
Total: direct = $300 vs. indirect = 5-6 hours
CA Secretary of State (Fig. #1) – age of your organization will define the amount of effort as well as the cost
Direct cost = between $20 and $200 vs. indirect cost = 30-60 minutes
CA Department of Justice Charity Registry (Fig. #2) – Register and renew every year
Direct cost = $25 vs. in-direct cost = 30-60 minutes depending on how https://oag.ca.gov/ works on that day
IRS (Fig. #3) – yearly filing for a public charity is free and requires submission of a 990-N electronic form
Direct cost = free vs. in-direct cost = less than 30 minutes depending on how https://www.irs.gov website works on that day
Total: direct = $50-$200 vs. indirect = 90-160 minutes
Contrary to a popular belief, running an IRS-recognized 501.c.3 organization is not free. That being said it’s fairly inexpensive at a direct cost, but you need to take into consideration the indirect cost as well. Your indirect cost will include your dedicated time to “feed the government bureaucracy” and it could easily take more than just a few hours.
Hopefully, by now know exactly what it takes to create and most importantly keep your non-profit running. Good luck!