The short answer is no. In previous articles I’ve discussed the various business structures a family child care provider can operate under. After considering the LLC, S or C Corporation, and partnership, I concluded that being a sole proprietor (also known as self employed) is the best option for family child care providers.
The primary reason why child care providers consider setting up a nonprofit corporation is because they want to receive charitable contributions from individuals or corporations. They believe that this would be a good way to get funds to help their business.
To be entitled to receive charitable contributions, you would have to incorporate your business as nonprofit tax-exempt. This involves two steps. First, you would incorporate as a nonprofit, which is not difficult. Contact your state Secretary of State’s office for the proper forms to file.
Being a nonprofit, however, creates some negative tax consequences. You will lose some of your house deductions, similar to an S or C Corporation. You will also be required to do more record keeping and follow the formalities of a corporation which can be burdensome.
The second step is to apply for tax-exempt status from your state and the IRS. This is a much more difficult, if not impossible, task. A tax-exempt nonprofit is intended to benefit the public, rather than its owners. Tax-exempt nonprofits can also avoid paying local sales tax.
It’s highly unlikely that the IRS will approve you as a tax-exempt organization unless you can show that you are offering a community service that reaches more than just a handful of children. (Child care centers would not have a problem meeting this test.)
Before taking any steps to incorporate as a nonprofit, or to seek tax-exempt status, I strongly recommend that you consult with a lawyer and tax professional to advise you about the consequences of your decision.
For more information about nonprofits and other business structures, see my book Family Child Care Legal & Insurance Guide.
This article is part of a series about business structures. See also “Should You Incorporate Your Family Child Care Business?” , “Should You Set Up a Limited Liability Company (LLC)”, “Should You Form a Family Child Care Partnership?” and “Should You Form an S or C Corporation?”
Tom Copeland – www.tomcopelandblog.com
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