If you run a nonprofit or charitable organization, you generally don’t have to pay income or property tax, although there are exceptions, and even nonprofits have to pay employee taxes, including social security and Medicare.
The rules regarding becoming tax exempt and maintaining your status will require some detailed research on the IRS website. However, the general considerations you need to keep in mind are more or less straightforward.
Applying for Tax Exemptions
Before applying for tax exemptions, there are several steps you will need to take, while keeping in mind that nonprofit status is governed by state law, while Federal law governs tax exempt statuses.
Prior to attempting to apply for tax exemption, make sure you have all your organization’s documents, and determine which type of organization you own—trust, corporation or association. Then, if you haven’t registered your company yet, you will have to do so, by first determining your state’s registration requirements, then obtaining your employer ID number (EIN).
Once your organization is fully established, you will have to determine whether you want it to be filed under 501(c)3—for charitable, religious and educational organizations – or other 501(c) nonprofits. For the first option, you will either need to complete form 1023 or 1023-EZ, while all other types of nonprofits will require form 1024.
Maintaining Tax-Exempt Status
Even qualified charities and nonprofits need to file annual reports, if they want to keep their exempt status (though, of course, there are some exceptions you can read about on the IRS website).
The 990 series is generally required for all nonprofit organizations, depending on their income. Consult us to learn which is the correct form for your organization. Generally, larger nonprofits must use Form 990, while the 990-N or 990-EZ are appropriate for smaller nonprofits. Typically, private foundations have to fill out the 900-PF form regardless of their financial situation.
To learn more about how our firm can serve your nonprofit organization, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
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