Social Clubs
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Social Clubs are a somewhat special segment of tax exempt organizations falling under the Nonprofit segment (501 (c) ) of the tax code. Social Clubs include many ‘sports clubs’ and cover a broad spectrum of activities, hobbies, and interests. You will find everything from Archery to Zoo keeping clubs consisting of people who share that interest. Social clubs usually join the Business sector because they charge their members dues. Anytime finances are involved, and income is derived we have a business. If a social club were to operate without dues and with no other source of income they would not be seen as a business and would not need to involve themselves in business requirements. Social clubs will typically be classified as 501 (c)(7) organizations.
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NOTE:
(You may also want to reference the ‘Florida Incorporation’ topic)
(You may also want to reference the ‘Unrelated Business Income’ topic)
As the club begins to collect dues and other funds, they find they will need a bank account to manage these funds. Some choose to utilize someone’s personal bank account; however, this is not a wise move and should only be considered until a club bank account can be acquired. A good approach for a club is to become a tax-exempt business entity under the nonprofit 501 (C) segment of the tax code. This allows the club to take in dues and other funds and not be taxed on that income. There are alternatives, and any club may choose to become a normally recognized business that would then be a taxable business entity.
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Some terms you may want to familiarize yourself with are shown below.
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Nonprofit – Refers to businesses with a motive or purpose that is either charitable or serving the public good in some way. Church, hospital, food bank etc. are examples of Nonprofit organizations. The nonprofit organization is usually a 501 (c) 3 corporation but may take on other forms. The term nonprofit is misused frequently when referring to tax exempt and other organizations (see later definitions). Many Nonprofit organizations can receive donations which are tax deductible for the donor.
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Not For Profit – Clubs and organizations that serve a membership rather than the general public are usually ‘Not for Profit’. All funds are directed internally for the benefit of the membership. Not for profit organizations may receive donations, however they are not tax deductible for the donor.
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Tax Exempt – Refers to an organization that has been granted a Tax Exemption under the nonprofit (501 (c) ) guidelines.
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Setting up a social club is not very involved but does require some care in executing the correct forms.
(NOTE: the term EIN (Employer Identification Number) refers to the 9 digit Tax ID )
Obtain a Tax ID from the IRS by filing form SS-4 and specifying you are a social club.
Once accepted by the IRS you will be given a Tax ID and granted Tax Exemption.
Use your Tax ID to open a business bank account.
File the prescribed yearly tax return (usually a 990-n informational return)
Check and comply with any State and local regulations.
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If your Social Club wants to be a Nonprofit organization, you will have to Apply to be a Nonprofit rather than a Social Club and you will have different forms to fill out. You will have to first receive acknowledgement from the IRS that you are accepted as a Nonprofit organization. There are fees you will need to submit to the IRS to obtain Nonprofit status. You may also have additional requirements of the State and Local governments.