Common mistakes new nonprofits make

Mixing money

Paying organization expenses from a personal card, or personal expenses from the organization account, creates confusion and can jeopardize exemption. Open a dedicated account before the first donation and keep it separate.

A board of friends

A board chosen for loyalty rarely provides oversight. When the founder is the only person who knows where the money goes, the organization is fragile and the founder is exposed.

Missing the 27-month window

Filing Form 1023 late can leave donations made in the meantime without deductible status. Put the deadline on the calendar at incorporation.

Forgetting the 990-N

Small organizations often believe they are too small to file anything. Three missed years results in automatic revocation.

Soliciting before registering

Asking the public for money in a state that requires charitable registration, before registering, can lead to fines and orders to stop fundraising.

Promising what you cannot guarantee

Telling donors their gift is tax-deductible before exemption is recognized, or promising a specific use of funds you later change, damages trust and can create legal problems.

No minutes

Board decisions that are not recorded may as well not have been made when a bank, auditor, or funder asks for proof. Keep brief, accurate minutes of every meeting.

Paying insiders without process

Compensation for founders and relatives should be approved by independent directors based on comparable data, and documented. Unreasonable pay can trigger excise taxes on the individuals and the managers who approved it.

Starting what already exists

Duplicating an established organization splits donors and volunteers. Before incorporating, confirm the gap is real.