Obtaining a Tax-Exempt Status for Your Non-Profit
Obtaining a tax-exempt status is an essential step for non-profit organizations. Tax-exempt status provides non-profit organizations with a range of benefits, including exemption from federal and state income tax, as well as exemption from certain sales and property taxes. In this blog, we will explore the process of obtaining tax-exempt status for your non-profit organization.
The first step in obtaining tax-exempt status for a non-profit organization is to incorporate it as a non-profit corporation in the state where it operates. Once incorporated, the non-profit organization can apply for tax-exempt recognition from the Internal Revenue Service (IRS) and the state in which it is incorporated.
To apply for federal tax-exempt status, a non-profit organization must file Form 1023 with the IRS. There are two forms available: Form 1023 and Form 1023-EZ. Non-profit organizations with expected annual gross receipts of $50,000 or less may use the simplified Form 1023-EZ. Non-profit organizations with expected annual gross receipts of more than $50,000 must use the full Form 1023.
Here are the six essential steps in obtaining tax-exempt status for your non-profit organization:
1. Incorporate Your Non-Profit: File the Articles of Incorporation documents with the state where your non-profit will operate.
2. Obtain an EIN: Apply for your Employer Identification Number (EIN) with the IRS.
3. Draft Your Bylaws: Develop bylaws that clearly outline your non-profit organization’s purpose, structure, and governance.
4. File Form 1023: Non-profit organizations seeking federal tax-exempt status must file Form 1023 or Form 1023-EZ with the IRS.
5. State Tax-Exempt Recognition: After obtaining federal tax-exempt status, apply for state tax-exempt recognition.
6. Maintain Compliance: Non-profit organizations must remain compliant with tax laws, including timely filing of annual returns (Form 990).
It is essential to note that the application process for tax-exempt status can be complicated and time-consuming. It may be beneficial to seek assistance from an attorney or accountant with experience in non-profit tax law.
In conclusion, obtaining tax-exempt status is a critical step for non-profit organizations. By following the six essential steps outlined above, non-profit organizations can apply for and obtain tax-exempt recognition from the IRS and state in which they operate. Once tax-exempt status is obtained, non-profit organizations must comply with tax laws and maintain their status to receive ongoing benefits.