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Dear crwalsh1,
Our CT is strictly non-profit, so I can't really comment on that for yours. However, in my real job I do counsel a lot of people who are starting businesses. That's where I'm coming from for this.
Basically, it's your call -- do whichever. Creating a non-profit corporation will probably cost more in legal fees to start because of your state's requirements for a 501c(3) corporation. But if it actually makes money (wouldn't that be nice) you can use it to improve the program without having to worry about taxes, because it is not "profit."
A sole proprietorship in most states treats all income as the proprietor's. Therefore, it is all taxable. Of course, you still have the ability to deduct all expenses, as well. It is significantly simpler to set up than is a non-profit corporation, but if you actually make a profit, it is taxable.
Finally, check out your state laws carefully. They vary a lot from state to state and whatever you do, you want to be sure you are operating legally.
Whichever option you choose, please take the time and spend the energy to develop a business plan and even a simple strategic plan to help you focus on exactly what it is you want. It's about the best way to ensure all the players are focused on the same thing, and will also help you identify start-up expenses and problems that you might otherwise overlook. Even though you may be working with a very tight group of family and friends, those folks often have a different perception of what the focus is. Thorough planning sessions are important. I'd be happy to help facilitate those, but I'm not in your part of the country! (I recently facilitated strategic planning in my CT and it really opeened a lot of eyes. I do that sort of thing in the real job.)
Lastly, break a leg! I wish you the best success.
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