Deciding on a tax structure


I wish to start a small business and while at first the goal will be to strengthen a community it would be nice to possible make money in the end. A group of us has gotten together to work on this task. The problem is that we cannot decide on a tax structure to go with.

From my understanding with a 501c7 money cannot be distributed to their members. But my feeling is that if some one such as a founder puts in a lot of hours they should be able to get paid for the work. At the same time if it is filed under a LLC or something along those lines no one can volunteer time so if the founder and friends volunteered time they would have to get paid for their time.

I want the best for the club, but I would like the possibility to earn a little bit of income at the same time.

LLC Non Profit Tax Tax Structure

asked Apr 20 '11 at 16:36
Ak Geek
11 points
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2 Answers


A 501C7 is a non profit. This means proceeds must be used for the better good etc. and no profit can be taken out.

It does NOT mean no one can be paid for work by some other arrangement (freelancer, employee). There are some very large non-profits with hugh payrolls and asssets. For example the Red Cross.

So, in a non-profit you still can have people getting paid - which then obviously pay income tax on the money they get (or you pay them for them, actually, by deductions).

answered Apr 20 '11 at 16:44
Net Tecture
11 points
  • Thanks for the fast reply. So if I decided that we have made enough money as a club I could then for example pay myself or another person. The only catch is that the person or myself would have to pay taxes on the money or have the company pay the taxes on the money. Then what would constitute profit? At the end of the year would all money in the account have to be spent? – Ak Geek 13 years ago
  • SORT of - the devil is in the detail. Check the regulations. But non profits CAN pay people, otherwise you cuold never o certain things that require outside help. – Net Tecture 13 years ago


Non-profit I've noticed there tends to be a lot of confusion around the term non-profit.

Non-profit is basically just a tax designation. All it means is that at the end of the year the business books must show a profit of $0. It does not mean that a non-profit cannot have income, charge for services rendered, or pay for services received. A non-profit basically behaves in the same way a for-profit business would - the main difference being that a non-profit must spend all of the income it received by the end of the year, whereas a for-profit organization can choose to keep the money in the bank for future expenses.

For example, let's say you have a non-profit animal rescue organization. You can request money in exchange for your adoption services. Likewise, you can pay someone in exchange for a service they provide for you. Ideally you would like people to volunteer their time because they believe in your mission. However, you will likely have key employees you would like to retain, and you can offer them a salary. As NetTecture pointed out, the Red Cross is a good example.

So, as NetTecture correctly pointed out, you can pay yourself under a non-profit status. LLC An LLC (or similar business structure) does not have to pay its founders. A lot of startups actually start off this way. If there's not enough revenue to cover the expenses, then the LLC founders can choose not to pay themselves. The term "sweat equity " is sometimes used in these cases: a startup company formed as a corporation, employees may receive stock or stock options, becoming thus part-owners of the firm, in return for accepting salaries that are below their respective market values (this includes zero wages).

For more information on distribution options for LLC members see How does a business owner take money out of their business.

In summary, regardless of your choice of tax structure, you can choose to pay, or not pay, yourself.

answered Apr 21 '11 at 06:22
Zuly Gonzalez
9,194 points

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LLC Non Profit Tax Tax Structure