Can a Sole Proprietorship Be a Nonprofit Charity?
A sole proprietorship is a business owned by a single individual seeking to earn profits. By such definition, it cannot be considered nonprofit. If you operate as a sole proprietor, you cannot receive charitable donations and keep them from being taxed; the Internal Revenue Service does not treat individuals as tax-exempt charities. However, you can reduce your taxes through participating with or supporting organizations dedicated to education, religion, alleviating poverty and sickness and other types of charity.
You may organize a nonprofit corporation by filing Articles of Incorporation with your secretary of state or corporations office. Nonprofit corporations may have members or directors manage the corporation. Unlike shareholders in for-profit corporations, members have no right to the nonprofit's property or its earnings. To get tax-exemption, you must apply to the IRS unless you are a church. The corporation's articles must state the corporation will not violate the requirements for being tax-exempt; the directors and members will not receive any of the earnings; and, upon its end, the corporation will transfer its property to other tax-exempt groups.
A charity may exist as a nonprofit association upon the agreement of at least two (or in some states three) people to conduct charitable activities. Unlike a nonprofit corporation, an association is not required to file organizational papers for recognition by the state in which the association operates. However, the association must submit an articles of association or formation documents to the IRS to be tax-exempt. Members of a nonprofit association, as with a nonprofit corporation, are shielded from personal responsibility for the obligations of the association.
You may write off donations and volunteering expenses for charitable organizations if you itemize deductions on your federal tax return. Money you spend to buy raffle tickets or other items from the charity do not count, even if the purchase is part of a fundraiser. You get the fair market value of property you give to charity; if you donate a vehicle and the charity sells it, you deduct the sale price. The cost to travel to a volunteer site or a convention or meeting if you serve as a delegate qualifies for deductions, but not if you treat the trip as a vacation.
As a sole proprietor, you may treat the sponsorship of a charitable organization's event as a business expense. The sponsorship may include placing an advertisement in a bulletin or program for a concert or being the event's title sponsor. The sponsorship draws attention to the business and qualifies as a business expense rather than gift to charity. You deduct these costs only from the earnings for your business and report them on Schedule C of your federal Form 1040.