Paying Dues/Bank Accounts/Taxes

[shodog]

I have a question about taking money for dues, bank accounts, taxes, etc.

I'm pretty sure the general answer is going to be "find out the laws in your local area" but I'm hoping for a little guidance.

I have recently started a martial "club" under the auspices of my national federation. It is a "not for profit" meaning I'm not making a salary and am actually paying dues myself.

All monthly funds collected go toward paying rent on the building where we work out. We are covered by the facility's insurance and some of the money we pay in rent, obviously, goes towards that. There is some "left over" money which will go into a club fund to help pay for high ranking instructors to come train us, equipment, travel expenses when we travel to other dojos, etc.

Here's my question:

What do I need to do to set up a bank account for the club fund? I'm worried about the IRS seeing this as personal income and me having to pay taxes on it. Will I have to pay taxes on it? Do I need to set up an LLC, or file Articles of Incorporation, etc.

I'm really kind of a babe in the woods/deer in headlights with all this stuff.

Any direction/advice anyone could give would be most appreciated.

Thanks,

Jim Mahanes
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[mvoncannon]

You mentioned the law aspect, so I won't go there.

Typically you need a business license or other legal document that makes your club an entity (Incorporation Documents). Then you need to name trustees, presidents, boardmembers etc... Once you have that you go to the bank and open your account. There is more to it than this simple view. I have done this with scouts and that is how it was worked.

Perhaps the parent organization already has all the other stuff done and you just need to attach to it.

This sounds complicated, but it really isn't. Just time comsuming. Seriously, local laws and all that.

[DragonMind]

Yeah, local laws, but you know that.

I've done it with a number of non-commercial operations and it is no big deal. As treasurer for my bowling league, I just went to the bank and opened an account in the league's name with two signatures required. The bank knows this is not a commercial operation and as long as the checks aren't made out to you, the IRS won't see it as potential "income". You don't need to incorporate or anything since you aren't running a business.

[mvoncannon]

I truely do hope it is that simple.

[aplonis]

You can go to your bank and set up a "Doing business as..." account. It will be a separate identity for you, yourself. You can get checks printed and everything. If you only put money in and write checks for valid exenses, insuring to keep strictly separate records so as to prove that the cash flow is all one-way...outward...there should not be an issue.

Take care to never do anything murky like write a check to yourself, or to cash, for any reason...not even to reimburse out-of-pocket expenses. Consider those donated. Never draw money out from an ATM, anything like that. Then you should be safe enough. I would also pay whatever the bank charges to have checks returned so that you have hard-copy receipts for everything.

If your "org" makes no profit at all, or even better loses at least a pittance consistently, then the IRS tends to call it a hobby provided you do not claim any losses as deductions on your taxes. If you did lose money for three years in a row they are inclined to call it a hobby and disallow deductions for losses in any case.

I have done this for a meditation group which I oversee for quite some years and it has never been an issue. I went to the trouble of filing for State of Michigan incorporation as a non-profit for one year but the required board of officers is hard to fill as we are not structured that way. Our top office is "Coordinator" not "President" and is appointed not elected. In one sense, though, we could be considered a church. So maybe we have protection there. Nevertheless it is very easy for me to prove that our group does not own any real property, has no physical assets, and that we operate at a perpetual loss.

I had looked into doing the 501C3 thing. But none of our members is a lawyer, the application packet is an inch thick, and I didn't care to pay a laywer the $1,500 fee they asked to do it for me. It has been quite some years and there has never been a problem either with the bank or with the IRS.

[shodog]

Interseting stuff here....thanks everyone.

Gotta admit the "consistant losses" stuff worries me as I can't affored personally to keep the school/club afloat. If it comes down to me having consistant losses (especially for three years in a row)...I think my boss/wife would have a cow :laugh:

I understand what you're saying though.

Again thanks and keep the advice coming.

Jim

[DragonMind]

Constant losses isn't an issue since you aren't a commercial operation and you're niot filing taxes. All you are doing is collecting the funds needed to pay expenses so the concept of profit/loss doesn't actually apply. Make sure that your group's charter -- you do have one right? -- states that it is not selling a service and all funds collected are used to defray expenses. If you were actually a commercial operation we'd have to talk about more than just tax returns and bank accounts (business licenses, sales tax licenses, worker's comp insurance, etc).

Gan brought up a good point in never mix personal funds or purposes with the group's funds. Provided you have receipts for expenditures, don't worry about writing a check to yourself or getting money out of petty cash. Those are normal, routine actions that your bookeeping will easily explain. Get receipts for EVERYTHING, no matter how trivial.

[aplonis]

If it comes down to me having consistant losses (especially for three years in a row)...I think my boss/wife would have a cow :laugh:
Jim

If losses were kept to pocket change you'd have no need of telling her (unless she counts your pocket change). And besides, should funds get tight, having a cow could help with expenses...at least the milk money part. :D

[shodog]

"And besides, should funds get tight, having a cow could help with expenses...at least the milk money part."

:laugh: :laugh: :laugh: :laugh: :laugh: :laugh: :laugh:

Never thought of that....and with a new baby on the way...may not be such a bad thing.

Jim

I appreciate everyone's help...