Ok, so my wife is around now. She's a CPA/PhD in accounting and does a lot of work with small businesses, so I suppose she knows what she's talking about. While non-profits are not her specific area of study, she does do the accounting work for a couple of local non-profits. She's never steered me wrong yet:)
So that said:
The $5000 exemption you reference does not alleviate you of the other requirements for operating a 501(c)(3). More specifically your company must operate for a specific "exempt purpose" (http://www.irs.gov/charities/charitable/article/0,,id=175418...).
If I'm following the article correctly, you wrote an iPhone app that does not fall under any of those exempt purposes. Therefore, even operating under the $5000 receipts limit, your company is not eligible for 501(c)(3) tax exempt status.
Any income that you made from the app should be treated as personal income. You don't even need to form a business entity to do business at all. You can take that $5000 and declare it as personal income just like any other income you make throughout the year. That does open you up to increased liability, which is why LLC's have become a preferred vehicle for proprietorships and partnerships. In most states it's nothing more than a very short form and $25-$100. It grants you some protection for your brand as well as limiting your liability in certain situations (for instance, it provides a shield to your personal assets for lawsuits around copyright infringement).
Thanks for asking your wife :). I'll keep that in mind next June because 2010 was our first "profitable" year.
We have a tax-exempt purpose— it's charitable. We're actually raising money to build computers for remote villages in North India and donating the rest to a blind school. The iPhone app is just a means of fundraising.
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Ok, so my wife is around now. She's a CPA/PhD in accounting and does a lot of work with small businesses, so I suppose she knows what she's talking about. While non-profits are not her specific area of study, she does do the accounting work for a couple of local non-profits. She's never steered me wrong yet:)
So that said:
The $5000 exemption you reference does not alleviate you of the other requirements for operating a 501(c)(3). More specifically your company must operate for a specific "exempt purpose" (http://www.irs.gov/charities/charitable/article/0,,id=175418...).
If I'm following the article correctly, you wrote an iPhone app that does not fall under any of those exempt purposes. Therefore, even operating under the $5000 receipts limit, your company is not eligible for 501(c)(3) tax exempt status.
Any income that you made from the app should be treated as personal income. You don't even need to form a business entity to do business at all. You can take that $5000 and declare it as personal income just like any other income you make throughout the year. That does open you up to increased liability, which is why LLC's have become a preferred vehicle for proprietorships and partnerships. In most states it's nothing more than a very short form and $25-$100. It grants you some protection for your brand as well as limiting your liability in certain situations (for instance, it provides a shield to your personal assets for lawsuits around copyright infringement).
Thanks for asking your wife :). I'll keep that in mind next June because 2010 was our first "profitable" year.
We have a tax-exempt purpose— it's charitable. We're actually raising money to build computers for remote villages in North India and donating the rest to a blind school. The iPhone app is just a means of fundraising.