At a certain point in the lifespan of your business, it might become advisable for you to create a separate legal entity, like an LLC or corporation, to help protect your own interests. We can fiscally sponsor any type of business entity, provided that the specific programs or activities that we are sponsoring remain nonprofit in nature.
Fractured Atlas is not providing official tax advice. These are guidelines and best practices based on our policies and operations. Please consult with your accountant, professional, and/or attorney to determine the best means of filing your taxes and reporting your income. You can find information to share with your tax professional here.
Operating a Business
Regardless of whether you consider yourself a businessperson, raising money via fiscal sponsorship to produce your work means that you are operating a business and there are certain responsibilities that you must embrace in order to run a business in compliance with the law.
Types of Businesses
There are many different ways to form a business. However, most of our sponsored projects fall into one of three categories:
- Sole Proprietorships
- Limited Liability Companies (LLCs)
If you are an individual and you provided your social security number in the fiscal sponsorship application, then you are likely operating as a sole proprietorship. If you are confused about this, try searching Google for “business entity types” or “compare business entities” since there are many online resources available to advise you on the subject. If you ever decide to change your type of business (for example, you form an LLC or decide to incorporate), please contact our staff so that we may change our records to reflect the correct legal entity that is responsible for reporting the income we disburse.
Income disbursed from your sponsored fund is generally considered taxable income and must be reported to the IRS accordingly. The legal entity listed on your fiscal sponsorship application is the entity responsible for reporting the income, even if we made an electronic fund transfer to a bank account owned by another entity.
If your project receives a noncash gift, the value of the noncash gift will be considered a grant from Fractured Atlas and is therefore also taxable income. Keep in mind that Fractured Atlas will only issue 1099s to the legal entity listed on the fund. It is the fiscally-sponsored project’s responsibility to issue any required tax documents to contractors or vendors.
At the end of every calendar year, Fractured Atlas will issue a Form 1099-Misc. statement (“1099”) only to projects for which Fractured Atlas has released more than $600 during the calendar year. The 1099 will list the name and tax payer ID number (SSN or EIN) of the project that we have on file. This information is reported to the IRS as required by law. When you file your taxes, it’s important that you report all of your expenses to offset this income, so that you don’t end up owing any more tax than necessary on money that has been granted to you from your sponsored fund. If Fractured Atlas releases less than $600 from your sponsored fund during the calendar year, you will not receive a 1099 from Fractured Atlas and you should check with your accountant to determine how to file this income on your taxes.
1099s are not issued to corporations. If the legal entity responsible for your fund is a corporation, you will not receive a 1099; HOWEVER, the entity’s board is still responsible for filing the appropriate corporate tax return and reporting appropriate income. If you have formed a corporation, you should find an accountant to advise you on your tax responsibilities.
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