The Benefits Of Nonprofit Fiscal Sponsorships For Musicians
As DIY musicians we try to think of ourselves as businesspeople as well as creatives. But with so many people expecting us to provide our services and products for free or cheap, it sometimes feels as if we’re in charity work.
In fact, I used to wonder half-jokingly whether I should establish my own 501(c)(3) nonprofit organization to house my musical activities as a composer/bandleader. After all, couldn’t music performances, especially in noncommercial genres like jazz improvisation, be seen as a form of community service similar to a local theater or small museum?
At the very least, I figured a tax-exempt status would signal that I wasn’t “in it for the money”–just looking for enough income to sustain myself, pay my band fairly, and create meaningful music.
But it turns out that setting up and maintaining an actual nonprofit is complex and expensive. It’s also an awkward fit for an individual artist, since tax-exempt status is granted to a particular mission, not a particular person. For example, if you’re the founder/choreographer of a dance company, but you retire or get fired by your board, the nonprofit designation remains with the company for as long as it continues to operate.
Then I found out about an interesting hybrid concept called “fiscal sponsorship.” A fiscal sponsor is an established nonprofit organization that agrees (by legal contract) to take an individual artist or group of creative collaborators under its wing for a particular project.
With fiscal sponsorship, you remain a separate legal business with complete creative control over your work. And if your project does turn out to be wildly successful, there aren’t any limits to how much revenue you take in. As they say in the charity world: nonprofit is a tax status, not a business strategy!
But meanwhile, you are able to take advantage of some of your fiscal sponsor’s financial features as a tax-exempt organization.
The most important one is this: you can offer fans, supporters, your parents, or your rich bachelor uncle the possibility of making a tax-deductible donation to benefit your project.
People who itemize their federal tax returns are bound to give you a little bit more money, or at least give it more easily, if it creates a charitable-donation deduction for them. In some cases, you may even be able to integrate your fiscal sponsorship with a crowdfunding platform to seamlessly offer that benefit to your fans.
And this is just speculation on my part, but fiscal sponsorship may provide psychological comfort for donors who want some accountability. Their checks or credit card payments go to your fiscal sponsor, which takes a small administrative cut and then releases it to you for legitimate project costs (including paying yourself along the way, of course).
Fiscal sponsorship can also help you qualify for grants from foundations that only give money to registered 501(c)(3) organizations. This is great if you’ve got a community-oriented or mission-driven idea. Grants that came in via our fiscal sponsorship were the only way my co-creator ellen cherry and I were able to get our massive Baltimore-based Pink Floyd tribute, Mobtown Moon, up and running.
For more detailed information, check out this list of nonprofits who run fiscal sponsorship programs. I can also highly recommend our own fiscal sponsor, Fractured Atlas, a nationwide organization that supports artists in a variety of ways.
Now that our project has been funded, recorded, and released, we look forward to figuring out what we can do to make it a genuine music-business success. But we’ll always be thankful for the community and donor support we received to get it going, with the help of our fiscal sponsor.