Parent Booster USA is back, answering even more of your questions. This time we had one worth sharing beyond our humble FAQ: when opening a bank account, what category should a booster group fall under — S Corp or C Corp — if “nonprofit” isn’t an option?
This simple answer is that your organization should always check the “other” or “nonstock corporation” box if “nonprofit” isn’t available. We have a few easy reasons for this throughout. Let us first explain the usage and purpose of the terms S Corp and C Corp and why they may confuse our members.
S Corp is short for Subchapter S Corporation (sometimes “Small Business Corporation''), which in IRS language is a label for tax designation. To clarify, you cannot file for state incorporation as an S Corp. Instead, you apply to the IRS to become an S Corp after incorporation (explained more below). The “S” comes from a subchapter of the Internal Revenue Code.
These corporations involve shareholders (less than 100), who individually claim income rather than being taxed at the corporate level.
S Corps start and receive their designation by electing to file Form 2553, Election by a Small Business Corporation. This eliminates corporate-level taxation. Income and losses are treated as if the business is a partnership rather than a separate entity.
C Corp is short for C Corporation which is a corporation taxed under the subchapter C of the Internal Revenue Code — the “default” of a for-profit corporation. These are businesses that can be taxed, make a profit, and be held liable in the event a claim comes up as a business (from startups.com, What is a C Corp?). When we say a business can be held liable, this is the main difference between the two.
S Corp shareholders can be held liable on an individual basis (from bizfilings.com, S and C Corporations Create Different Tax Consequences). C Corp shareholders have the benefit of the business itself being held liable.
However, this results in C Corps being double taxed—once at the corporate level and once at the individual level. They file Form 1120 for their taxes yearly.
Up to this point, it may still be a question of “which box do I check?” It is likely “nonprofit” will not be an option. If possible, check a box that says “other” or “nonstock corporation,” or try to explain to the bank your group is a nonprofit. Unless your booster group is actually a S Corp or C Corp, it does not benefit your booster to check these boxes.
The other reason to not check these boxes: the tax process for S Corps and C Corps is different from a 501(c)(3) nonprofit. You don’t want your financial documents to have incorrect information on them.
Filing a 990-series tax document is a description of the financial situation of the organization for nonprofits. So when a nonprofit files this every year, it is more of an informational return.
We Love Answering Your Questions
We at Parent Booster USA love answering questions in the easiest and friendliest way possible. Tax codes, organization designations, and the like can become confusing, but we are here to simplify. Let us know if you have additional questions. Never hesitate to reach out to PBUSA!
The only organization of its kind in the US, Parent Booster USA is about helping school support organizations (parent teacher organizations, high school booster clubs and other school fundraising groups) handle the state and federal government paperwork required of fundraising groups.
Founded in 2004 by an attorney skilled in nonprofit and tax law, Parent Booster USA has more than 5,000 member organizations in 50 states and DC with a 95% annual renewal rate. We provide peace of mind for parent volunteers, school administrators and school district leadership.