Does registering a non-profit have tax benefits?


A non-profit organisation does have the chance to be exempt from federal income tax, as outlined by the IRS, according to specific guidelines. 


According to the US government website, a non-profit acts in the service of the public or the community and does not make a profit. The Internal Revenue Service (IRS) categorises the accepted non-profits into the following five categories: charitable or religious organizations, social welfare organizations, labor and agricultural organizations, business leagues, and veterans organizations. Each of these categories have varying tax benefits and requirements, and you should review these as you decide on the best choice for your non-profit organization. 



What are the steps to starting a non-profit? 


1.   Decide on a business name

This is the first and most essential step. The name has to abide by state guidelines and need to be in accordance with numerous laws that apply when choosing a name for a non-profit in each state. 

2.   Decide on a registered agent

It is necessary to choose a registered agent from your state. This is an individual or business entity which can receive formal legal documents on the behalf of the business. This person needs to be a resident of the state where your non-profit is being formed, or a corporation which is allowed to conduct business in your state. 

3.   Select a Board of Directors

The directors of the non-profit come together in order to form a board of directors who are counted upon to supervise the operations of the non-profit. The organization of the non-profit is obligated to include, at a minimum, three board members who are not related to each other. 

4.   Implement Bylaws and a Conflict of Interest Policy

In order to be entitled to apply for tax-exempt status, the non-profit has to have two documents: 

·      Bylaws – the rules charting the operating procedures of the non-profit, and the 

·      Conflict of interest policy – a compilation of rules assembled so that any decisions made by the board of directors of the officers are made to benefit the non-profit itself and not individual members. 

5.   File your incorporation paperwork

It is necessary to file formal documentation, or articles of incorporation, as well as paying a small state filing fee. In order for your non-profit to be eligible for tax-exemption, there are two aspects that need to be expressly stated: 

·      Purpose: The document must state under which classification the non-profit falls under (Charitable, Religious, Scientific, Educational, Literary, Fostering national/international amateur sports competition, Preventing cruelty to animals/children, Testing for public safety)

·      Dissolution: It must be made clear what the assets of the organization will be utilized for and what would occur should the organization be dissolved. 

6.   Get an EIN

The Employer Identification Number (EIN), or Federal Tax Identification Number, is the number by which the IRS recognizes a business entity. it is required for three reasons:

·      In order to open a business bank account in the name of the company.

·      For Federal and State tax reasons. 

·      In order to hire employees for the company. 

An EIN can be acquired from the IRS and at no cost. You can get it online or by mail. 

7.   Apply for tax-exempt (501c3) status 

A non-profit organization has the potential to be tax exempt. The IRS provides the requirements for this to occur, and even provides a pdf download of the document, as well as the necessary steps to applying for tax-exempt status. However, there are four primary requirements:

·      Three directors who are not related to one another.

·      Filing the Articles of Incorporation. 

·      Establishing the bylaws and conflict of interest policy. 

·      Obtain an EIN number.

Once these requirements have been met, the non-profit can apply for tax exempt status by filing Form-1023. This can be done online, and once your application has been approved, the organization is officially exempt from federal taxes under section 501c3. 


Learn more on the TRUiC website where detailed information will be offered and links to the necessary documents provided. 


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