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How does the 501(c)(3) tax exemption benefit my organization?

There is a satisfaction that comes from knowing you are doing something to help others. Being able to be useful and help others through your work is the ultimate dream come true for many. However, it is still work and success means careful planning and consideration.

Running a charitable organization means your primary concern is likely funding. Obtaining adequate funds to fulfill your mission and distributing those funds in the most efficient way are certainly matters that take up your time and attention. However, your organization may also qualify for federal tax exemption status, and this could make a substantial difference in your bottom line.

Who may qualify?

The Internal Revenue Service does not hand out tax exemption status to just anyone who asks. Organizations that provide some service to fill a vital need in society may qualify, for example:

  • Education
  • Religion
  • Science
  • Literacy
  • Public safety
  • Amateur sports
  • Prevention of animal cruelty
  • Prevention of child abuse
  • Charitable endeavors

Once your organization has received 501(c)(3) exemption, the IRS will require that you keep scrupulous records of the organization's activities and financial transactions. You will also file informational tax returns each year and comply with any other regulations the IRS requires.

What are the breaks?

If your organization qualifies as a 501(c)(3) charity, the most consequential benefit is its exemption from paying corporate income taxes to the federal government. This has the potential for freeing up much more money to meet the needs of your charity. 

Each state and region has its own requirements for organizations seeking tax-exempt status at the state or local level. For some, it may be as simple as showing the letter of determination you received from the IRS after applying for 501(c)(3) status. Others may require a special application, so learning the requirements for your area will prove beneficial.

An attorney can assist you in understanding your rights and responsibilities as a 501(c)(3) organization and guide you in maintaining compliance to the IRS requirements for tax exempt status.

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