As a nonprofit organization, becoming tax exempt is not only beneficial for both your company and your donors, it also helps put you on a better path to pursuing your charitable objectives.
From a donor perspective, operating as a 501(c)(3), or an IRS-recognized nonprofit, confirms your legitimacy and ensures that any donations are tax deductible. These factors both increase the likelihood of a donation and often lead to receiving higher individual donation amounts.
From your organization’s point of view, one of the widely recognized benefits of becoming an IRS-recognized nonprofit is that you won’t pay any income tax on money you earn through donations or fundraising activities.
To help kick off the process for becoming a 501(c)(3) organization, start with these steps:
Step 1: Make sure that your nonprofit organization is pursuing an activity in the categories of religion, scientific, literary or educational, charitable, fostering national or international amateur sports competition, testing for public safety, or preventing cruelty to children or animals.
Step 2: Form a corporation in the state where your organization will be based out of.
Step 3: Apply for tax-exempt status with the IRS.
Step 4: After getting approved for tax-exempt status at the federal level, be sure to check your state’s requirements for becoming tax-exempt at the state and local levels as well.
Step 5: Strictly follow all requirements mandated by the IRS to maintain your tax-exempt status!
Overall, the process for becoming tax-exempt can seem tedious and time consuming. However, the long-term benefits that will ultimately help your organization reach and exceed its goals are invaluable.
Partnering with a local small business accountant that will help guide you along the way will be extremely beneficial for the financial health of the organization.