A non-profit primer
by Lynn Scheerhorn, Financial Director
Ohio Citizen Action is a non-profit tax-exempt membership organization.
What is a non-profit organization?
- Does being “non-profit” mean the organization is not allowed to make any money?
- Do we have to spend all our income before the end of the year?
- How are we different from for-profit companies?
A non-profit organization is allowed to make money, and to have a surplus each year. We don’t have to spend it all by the end of the year, quite the contrary. We would like to retain some of our earnings each year to build a strong organization. The stronger we are, the more we can do. One difference between us and a for-profit company is that we don’t have shareholders to distribute earnings to. If we do have a surplus, it goes back into the organization.
The main difference between Ohio Citizen Action and a for-profit company is that we exist for a charitable purpose, in our case to “Promote, encourage, and support citizens and residents of this state in the pursuit of a safer and healthier environment both in the neighborhood and the workplace,” as stated in our by-laws. In order to be approved as a non-profit organization by the Internal Revenue Service and the State of Ohio, we must have by-laws which state our charitable purpose, and describe how we operate.
We are governed by a Board of Directors, just as many for-profit companies are. One big difference is that our Board members serve on a voluntary basis; they are not paid. One of our strengths is that we have a very dedicated, knowledgeable, and vibrant Board of Directors. The Board is also legally responsible for the financial operation of the organization. In addition, Mills, Potoczak & Company audits Ohio Citizen Action yearly.
What exactly does tax-exempt mean?
- Does this mean we don’t pay any taxes of any kind?
- Are we exempt from filing tax returns?
- Why aren’t donations to Ohio Citizen Action tax-deductible?
There are different categories of tax-exempt organizations. Ohio Citizen Action is classified by the Internal Revenue Service as a 501(C)(4) social welfare organization. We do not pay any income tax on any of our earnings. We do pay some kinds of taxes, such as Social Security (FICA), unemployment taxes, and sales taxes.
We must still file all kinds of tax returns, even though we do not pay income tax. We still must report our activity to the Internal Revenue Service (Return of Organization Exempt from Income Tax, Form 990, identification number 34-1208942). These filings show that we still qualify as tax exempt, and report on an ongoing basis what we have been doing, where our funding is coming from, and what we have spent it on.
Ohio Citizen Action must file annually not only with the Internal Revenue Service, but also with the Public Charities Section of the Ohio Attorney General’s Office (Annual Report – Charitable Organization, CS-2).
Contributions to Ohio Citizen Action are not considered tax-deductible because we are a 501(C)(4) social welfare organization. This type of organization is allowed to do lobbying work on legislative issues. While we don’t do a great deal of legislative work, we want to be able to do it when the situation calls for it. Contributions are not tax-deductible because that would that would be equivalent to a taxpayer subsidy for a private organization attempting to influence legislation.
What is a membership organization?
Ohio Citizen Action is also a membership organization, one type of classification of non-profit organizations. This means that people join Ohio Citizen Action by paying annual membership dues. The money we collect is our members’ money, and we are trustees of it, held with the charge of responsibly using it for the best interests of the causes we are working for.