Tax Prep & Planning

Pointers for Applying for Tax-Exempt Status

Are you a principal of a new charitable or religious organization looking to apply for a tax-exempt status? Read the following article to learn what organizations qualify and how to apply for a tax-exempt status:

What Organizations Are Exempt from Taxes?

Section 501(c)(3) of the Internal Revenue Code describes organizations that qualify to be classified under this section as exempt from income taxes. These include religious, charitable, scientific, literary, and educational organizations. Also included are certain organizations involved with amateur sports, child and animal welfare, and public safety testing. The organization’s net earnings must not benefit any private shareholder or individual and the organization may not be involved in political activities.

Examples may include churches and other religious institutions, nonprofit schools and hospitals, museums, humanitarian organizations, and many other types of charities.

Only 501(c)(3) organizations are qualified to receive tax-deductible contributions from donors. Other organizations, such as political action committees, may accept “contributions” but donors may not deduct their contributions.

How Do You Apply for Tax-exempt Status?

It’s important to understand that there’s a difference between “non-profit” and “tax-exempt.” You set up a non-profit entity under the laws of your state, but you must apply for tax-exempt status with the IRS. Before you apply for tax-exempt status, make sure you consider or complete each of these steps:

1 – Determine if your organization is one of the following:

2 – Gather your organization documents.

3 – Determine your state’s registration requirements.

4 – Obtain an employer ID number (EIN) for your new organization.

Once you have completed the steps, work with a tax professional to file Form 1023, Interactive Form 1023 or Form 1023-EZ to apply for tax-exempt status under section 501(c)(3). To be exempt from federal taxes and to accept tax-deductible contributions, your organization must file an application for recognition of exemption with the IRS.

If your organization is applying for recognition of exemption and you wish to establish that your organization is a public charity rather than a private foundation, you must complete the applicable lines of Part X of Form 1023 or Part IV of Form 1023-EZ.

Important Note: The IRS will not process an incomplete application.

When Should You Apply for Tax-Exempt Status?

Your organization must file within 27 months from the end of the month in which it was organized for the exemption to be recognized as of the date of organization.

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