I’ve googled, but the returns I got are confusing - I’m hoping someone here can give me an answer in plain English or point me in the correct direction.
I make ceramic items that I sell at craft shows, but I’m not in it for the money - it’s a hobby that would leave my house full of pottery otherwise. My husband suggested that I should become a non-profit organization in that whatever I take in over and above the cost of materials and booth rental would be given to local charities. I like this idea, but I’m not sure how to make it legal for tax purposes.
It’s not like I’m talking a lot of money - at my best show so far, I didn’t even gross $100. But if I can advertise that all proceeds are going to charity, maybe I can sell more so I can make more pieces.
So, does this make me a non-profit? Or should I be operating under other rules? Or am I completely out of my mind?
I’m not a lawyer, but I have been involved in a few small, not-for-profit organizations. Basically, it would be hard to argue that selling your art is “not-for-profit” – there’s no charitable, religious, etc cause.
Don’t confuse the terminology. Although we say “non-profit,” it’s really “not-for-proft.” A charity, for instance, can certainly make a profit each year: however, basically, all such profit has to be put back into the organization. So, think of “not-for-profit” – the purpose of the organization is charitable (for instance) – which is different from an organization whose purpose is to earn profit for the owners. Having said that, I am aware of an art gallery that has managed to organize itself as a not-for-profit organization. I personally think it’s a sham, and if the feds ever investigate, the owner will be up shit creek. However, I suppose it’s possible that when the amounts of money are fairly small, the IRS may not care much…
Anyhow, it sounds like what you’re doing is donating the profit to charity. That’s pretty easy to do without the need for setting up an organization. You have a business, you deduct your business expenses, you contribute the profit to charity and then deduct that donation as a charitable contribution.You don’t need to go through the expense and hassle of setting up a separate taxpayer ID, applying for non-profit status, etc.
Well then at the very least, it sounds like I have to set up a real business, in that I’ll need to have a ledger if nothing else. Lucky for me, I have a baby brother who’s a CPA. I foresee a phonecall…
There are materials available, and agencies that will answer questions, but it’d be a good idea to talk to an accountant or a lawyer about it. Here’s a previous thread:
I don’t think you need to set it up as a separate business. Check with your brother the CPA, but my understanding is that any person can sell their art work without the need for incorporation.
Mine as well. I’ve set up more than a few corporations but I always had goals and legal requirements in mind when I did so. But for things like my freelance writing and consulting gigs, which I would put on par with your pottery, I just do it and declare the income on my taxes.
But do consult your CPA brother. Always best to check. And better if you can exploit family while you do it!
I’m all about exploiting the bro! Mr. CPA with his MBA workin’ as a CFO thinkin’ he’s a BFD! Of course, I wouldn’t say that to him till I get to pick his brain. heh.
A lot of small business are not-profit… I can speak from personal experience
But what your talking about is what the IRS calls a 501c3 exemption for a non-profit organization. As you can see on this page,, this is an extremely cumbersome process. Again, I can speak from experience.
Given the small amount of income you’re generating, I think an accountant would probably advise you just to file as a sole proprietor. If your revenue is consume by expense and charitable donations, your tax liability should be minimal, and that’s probably the simplest approach.
In other words, let’s suppose I do no unusual incorporation or paperwork. I’m just an ordinary guy, selling my pottery for a higher price than my cost of materials. I do have to include this profit as income. But let’s say I donate the profit to a legitimate charity. I can certainly deduct that as a charitable donation (presuming that I itemize my deductions, have good receipts, etc etc etc) so that I don’t owe any extra tax. But can I advertise that all proceeds are going to charity?
IANAA, but why not? Don’t all sorts of for-profit businesses run advertisements to the effect of “Buy our stuff! For each of our items that you buy, we’ll donate one cent to the XYZ Fund!” The OP’s sign would be the same, or even better.
Could be, but promotion of the arts is a valid nfp/(c)(3) purpose–lots of art galleries have shows open to the public and sometimes art classes, children’s outreach etc. Not uncommon. The profits from sales get plowed into supporting these causes. Since the “owners” can’t take out any profit, the only way to wrongly benefit is by paying themselves salaries/expense reimburesement beyond reasonable levels, which is indeed prohibited by the IRS, but difficult to quantify.
You say gallery, I say museum with a gift shop on steroids.
Mr. CPA with his MBA workin’ as a CFO thinkin’ he’s a BFD! Of course, I wouldn’t say that to him till I get to pick his brain. heh.
