A nonprofit organization is a business granted tax-exempt status by the Internal Revenue Service (IRS). Nonprofit organizations are sometimes called NPOs or 501(c)(3) organizations based on the section of the tax code that permits them to operate. Nonprofits pay no income tax on the donations they receive or any money they earn through fundraising activities. Donations made to a nonprofit organization are typically tax deductible to individuals or businesses that make them, but the nonprofits must make financial and operating information public so that donors are certain their contributions have been used effectively and efficiently.
A nonprofit, or non-profit corporation is a company or organization formed for purposes other than making a profit. Like standard for-profit corporations, nonprofits provide limited liability protection. The personal assets of directors and officers typically cannot be used to satisfy the debts or liabilities of the nonprofit. To start a non-profit organization, non-profit Articles of Incorporation must be filed with the state and applicable state filing fees paid.
Advantages of a nonprofit corporation
CERTAIN BENEFITS OFFERED BY NONPROFIT CORPORATIONS:
- Outside of providing limited liability protection, non-profit incorporation can lend additional credibility to your organization, as others may feel you are “more legitimate” because you have taken the steps to formalize your non-profit with the state.
- Some nonprofits are eligible to receive public and private grants, making it easier to get operating capital.
- Nonprofits can apply for both federal and state tax-exempt status.
- Directors and officers are typically not personally responsible for the nonprofit’s debts and liabilities.
- With 501(c)(3) nonprofits, donations made by individuals to the nonprofit corporation are tax-deductible.
Forming a tax-exempt nonprofit corporation?
Tax-exempt non-profits follow state laws that are very different from those of standard corporations — but the business formation process is very similar. In order for your non-profit corporation to become tax-exempt, Form 1023 must be filed with and approved by the IRS. Some states also require a state-level tax-exempt status filing.
For an organization to receive a “nonprofit” designation and to qualify for the tax-exempt status, it must further do religious, scientific, charitable, educational, literary, public safety or cruelty prevention causes or purposes. It must generate some public benefit also.
Non-Profits are a great way to serve society and community for a social and noble cause. This is a special recognition granted by IRS and the founders need to make sure all compliances are met in time as the penalties for delinquencies can be significant.
Non-profit organization has to take an extra step of applying for Tax Exempt status with IRS and once it is qualified for that status then organization will not have to pay the tax on certain income. The organization still has to pay employment taxes, file annual reports at both Fed and state level but some states exempt them from paying sales tax. Such organization may have to pay unrelated business income tax if the income is not substantially related to the charitable purpose. Non-Profits filings include 990EZ, 990, post card filing etc.
A nonprofit organization can pay staff as well as volunteers. Salaries are generally lower, but the type of nonprofit an individual works for makes a significant difference in the pay scale. University presidents and hospital CEOs work for nonprofit organizations and earn salaries comparable to those holding similar roles in for-profit organizations, whereas a person operating an animal rescue typically earns less. Ultimately, like any business, its success relies heavily upon its management and operation.
Employment taxes as well as state and federal workplace rules are typically the same as those for Non-profit organizations. A nonprofit must serve the public in some way, whether through the offering of goods, services or a combination of the two. Clientele often plays an important role in the success and lifespan of a nonprofit organization and customer satisfaction – as well as providing an overall satisfaction in the public area – and is key in keeping the organization’s doors open.
Examples of nonprofit organizations include hospitals, universities, national charities, churches and foundations.
USATAXX believes in Improving communities and changing lives. Integrity & Trust are ways to safeguard assets and they also help with effective tax planning for next generation. In the transition to the next generation, we’ll continue to provide the same trustworthiness and depth of experience to all our customers.
We help with formations as well as Form 1041 filings.