How to Get Tax-Exempt Status for a Non-Profit
Non-profit organizations are the bloodline of most communities. They can feed the hungry, shelter the homeless, provide for our educators, and so much more. It makes sense then that the government allows non-profit organizations to not pay taxes on most of their endeavors. This is called a 501(c)(3) tax exempt status, which allows charitable, religious, and educational non-profits like churches and charities to deduct items like donations, grant money, property and income from their taxes.
We’re sharing a few helpful tips to make this process easier for non-profits below.
Complete the Right Paperwork
All nonprofits seeking 501(c)(3) tax exempt status must complete IRS Form 1023 to qualify. This form is called the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. There are many legal and tax technicalities within this form, so it’s best to consult with a tax professional before attempting to submit this paperwork.
If you are a smaller non-profit organization, you may be eligible to file a simpler application form. This is called Form 1023-EZ, Streamlined Application for Recognition for Exemption Under Section 501(c)(3) of the Internal Revenue Code. This shorter application can be completed online for non-profits that file with less than $50,000 in annual receipts and have up to $250,000 in total assets. The filing fee is much less for this application as well. Talk with a tax professional to determine if your nonprofit is eligible for this tax-exempt option.
What’s Inside Form 1023?
There are many details you will need to fill out to complete Form 1023. Here are just a few:
- Identification of Applicant: This section of the form is where you explain to the IRS about your non-profit organization. They will ask for basic information like the nonprofit’s name, contact information, EIN number and when you filed for incorporation.
- Structure of Your Nonprofit: This is where you attach your articles of incorporation and your nonprofit’s bylaws.
- Descriptions of Your Activities: This is where you describe your organization’s activities in order of importance. You will want to explain how your activities further your organization’s mission, how you plan to fund your organization, etc.
- Financial Information: This section is very important because it prevents people from creating and operating a nonprofit for the sole benefit of its founders and other major contributors. You will need to disclose compensation structures for organization members like Directors, Officers, and Trustees.
- Organization’s History: If for any reason your nonprofit pre-existed as a different incorporated organization, then you will need to disclose that in this section. Or if you’ve taken over 25% or more of the assets from a pre-existing nonprofit, note that here.
Navigating the process of structuring your nonprofit as a tax exempt organization can be a confusing process. Be sure to speak with a tax professional who can guide you through this important step to make sure nothing is missed!