Non-profit Organizations, Become Tax Exempt Today!
This article is for all of the non-profit organizations out there, especially those who are just starting out! Non-profits receive money through donations from others. It comes as a huge benefit to both donor and donee that not only can these non-profits avoid corporate level tax and help others but those donating can then turn around and deduct those donations on their tax returns!
Becoming a tax-exempt organization is separate and distinct from being a non-profit. It doesn’t just happen automatically when you start up. What needs to happen in order for both parties to be able to receive a special tax treatment is that the organization must apply/ file for a 501 (3) c tax exempt status with the Internal Revenue Service. A 501 (3) c status treats profits or income from that organization as NON taxable or exempt. A 501 (3) c status does not exempt that organization from other types of taxes like payroll taxes.
Now, this process of applying isn’t as daunting as some of you may have thought, and it is well worth it! First, there are several requirements that must be met by the organization seeking an exempt status, which you can find on the IRS website (or right here! —> http://www.irs.gov/charities/charitable/article/0„id=96099„0.html ) As long as these requirements are met, you can move onto the next step. An application for exempt status needs to be completed, also known as a form 1023 (which you can find right here! —> http://www.irs.gov/app/picklist/list/formsInstructions.html?value=1023&criteria=formNumber&submitSearch=Find). An Organization has 1 year and 3 months from the date the company was started to send in this application, with a 1 year extension if needed. This will allow the organization to act as tax exempt from the date of it’s creation. If both deadlines have passes, don’t worry! The non-profit can still be considered tax exempt from the starting date of the application.
Once the application is in, along with any other mandatory forms that hadn’t been sent in before, it’s just a matter or waiting for the determination letter! If the company has filed for the exempt status but has not heard back yet and it’s time to file an annual return, they are allowed to act as a tax exempt organization. They are asked to indicate that the “application is pending” on the return. Publication 4220 from the IRS is a great resource that explains this whole process in great detail in a way that’s easy to understand.