Nonprofit Tax Benefits
There are over 1.5 million tax-exempt, nonprofit organizations in the United States, according to recent data from National Center for Charitable Statistics. Nonprofits can be anything from a local church group to a major opera house in a large metropolitan area.
Whether you run a charity program to promote clean water in rural communities or an organization to help advance Alzheimer's disease research, understanding tax laws governed by the Internal Revenue Service (IRS) is key to obtaining and maintaining tax-exempt status for your charitable organization. This includes filing your nonprofit's financial statement, as we will discuss below.
Under 501 (c)(3), your organization can enjoy several benefits. These include being exempt from federal income taxes, tax-exempt financing, low-cost postal rates, possible exemption from local taxes such as state and sales tax, and even the perk of tax-deductible contributions.
Isn't My Nonprofit Automatically Tax-Exempt?
Some people mistakenly belief that forming a nonprofit automatically gives the organization all the tax benefits that come along with being "exempt." That is simply not the case. Keep in mind, nonprofit status refers only to your state's laws regarding corporate status, while tax-exempt refers to federal and state exemption under the U.S. tax code. As a nonprofit organization, you have to apply for special tax designations under 501(c)(3). They are not automatic. See FindLaw's Becoming a Tax-Exempt Organization to learn more about how to apply and enjoy exemptions from federal, state, and local taxes.
Requirements After Obtaining Tax-Exempt Status
Once your charity gains tax-exempt status, you'll still have tax filing requirements you must comply with in order to maintain 501(c)(3) status. If your nonprofit has $50,000 or more in gross receipts, will likely have to file a Form 990, Return of Organization Exempt from Income or Form 990-EZ. Smaller organizations, those with less than $50,000 or more in gross receipts, may still have to file what is known as a "electronic notice" with the IRS.
Do 501(c)(3) Nonprofit Corporations Have to Make their Financial Statements Available to the Public?
Yes. Nonprofit corporations must submit their financial statements, which include the salaries of directors, officers and key employees to the IRS on Form 990 as mentioned above. Both the IRS and the nonprofit corporation are required to disclose the information they provide on Form 990 to the public. This means that nonprofits must make their records available for public inspection during regular business hours at their principal office.
In addition, a number of websites make these financial statements available including GuideStar and the Foundation Center. Finally, you can request a Form 990 from a specific nonprofit corporation by writing to the IRS, including the name of the organization and the tax year you wish to review:
Commissioner of Internal Revenue
Attn: Freedom of Information Reading Room
1111 Constitution Avenue, NW
Washington, DC 20224
Get a Free Initial Legal Review of Your Nonprofit Organization
The financial health of your nonprofit organization is extremely important. Working with a lawyer who understands the laws surrounding 501 (c)(3) is crucial to making nonprofit status benefit your charity. Speak to a business and commercial law attorney in your area today for a free initial legal assessment to learn more.