Understanding Nonprofit Status and Tax Exemption Use legal

Understanding Nonprofit Status and Tax Exemption

Use legal counsel when applying for nonprofit status and tax-exemption

Key difference: Nonprofit status is granted by the state, while the IRS grants federal tax-exemption.

Three types of federally recognized nonprofit organizations: • Corporations • Unincorporated organizations • Trusts

Corporations: • Most common choice for community organizations • Are well understood • Promote continuity • Limit personal liability

Federal tax-exemption: • 501(c)(3): the "charitable tax exemption" • Allows exemption from federal corporate and income taxes • Allows solicitation of tax-deductible contributions • 26 different exemptions exist for different purposes

Ways to become tax-exempt: • Application • Automatic recognition • Using a fiscal conduit

Weighing the advantages and disadvantages of nonprofit and taxexempt status

Understanding when you should (and shouldn't) consider applying for such status

Applying for nonprofit status: • • • Hire legal counsel Decide whether to apply Decide the form you will take Decide the state Apply for nonprofit status Be aware of requirements for reporting and renewal

Applying for tax-exemption: Hire legal counsel Determine eligibility Decide to apply Obtain nonprofit status Decide the exemption your organization is eligible for • Apply for exemption • Understand requirements for reporting and renewal • • •

Finding cheap help: • • Ask, ask! Legal Aid American Bar Association lists Publications related to your cause