Doing Good, Now That You're Doing Well--Forming and Running a Non-Profit

Doing Good, Now That You're Doing Well--Forming

and Running a Non-Profit

There are various kinds of non-profit organizations that are recognized by the IRS and State Tax Departments as tax-exempt.  These organizations do not pay income tax, and often do not pay even real estate taxes or sales tax.  The theory behind the tax-exemption is that these organizations are carrying on functions that are good for the public and should be encouraged, and therefore they should not be burdened by taxes.

The types of organizations that are tax-exempt include the obvious non-profits, such as churches, schools, and charities.  But other organizations that are not so obviously favored also qualify for tax-exempt status and need not pay taxes, these include organizations that are devoted to saving the environment, to voters' education, and trade associations and alumni groups.

Although many organizations with divergent goals and activities all seem to nonetheless qualify for tax-exemption, only certain types of organizations may extend this "tax-exempt favor" to their donors for their donations, that is to say, only contributions that are made to "Section 501(c)(3) organizations" are tax-deductible as charitable donations.  If the organization to whom a taxpayer makes a contribution is not a Section 501(c)(3) organization, then usually the only way the contribution is deductible is if it qualifies as a business expense to the taxpayer.

Section 501(c)(3) organizations, because of their favored status of being able to receive tax-deductible contributions, are subject to special restrictions that do not apply to other types of tax-exempt organizations.  For example, Section 501(c)(3) organizations are restricted in the amount of lobbying activity they may conduct, and campaigning for political candidates are almost never allowed. 

To get tax-exempt status from the IRS, a Section 501(c)(3) organization should file an IRS Form 1023 and other non-profit organizations should file an IRS Form 1024 (the user fee charged by the IRS usually ranges from $300 to $750). 

In some cases, a new non-profit can fit under the umbrella of an existing non-profit that has a "Group Exemption."