Is My Organization Tax-Exempt?
If you are part of a non-profit organization or are thinking about starting a non-profit, applying for tax-exempt status can help you make a bigger impact on your community. Many people don’t understand the difference between non-profit and tax-exempt statuses, but the organization Community Tool Box has published a helpful guide for determining how to become tax-exempt.
What’s the Difference Between Being a Non-Profit and Being Tax-Exempt?
You might be surprised to find out that “non-profit” and “tax-exempt” are not synonymous. Some not-for-profit organizations are not tax-exempt, though most are.
Difference #1: Governmental Agencies
Individual states grant non-profit status, but the federal government grants tax-exempt status through the IRS.
Difference #2: Timing
Being a non-profit simply means your organization’s leaders and supporters do not earn a profit. The organization itself can make a profit, but its goal is not to make money. That’s why non-profits are also called not-for-profits.
Typically, organizations receive their non-profit status before their tax-exempt status. In fact, your organization must be recognized as a non-profit before it is eligible for tax-exemption.
Applying for Federal Tax-Exempt Status
Community Tool Box gives several suggestions for how best to apply for tax-exempt status. There are 26 total exemptions, so understanding which one applies to your organization can be confusing. In addition, the application process is involved and takes a long time to complete. Here’s some advice to help you get started:
- Hire trustworthy and experienced legal counsel
- Determine whether or not your organization qualifies for tax-exemption
- Decide if your organization will benefit from a tax-exemption
- Find the right tax exemption for your organization
- Complete the application
- Understand the requirements for being tax-exempt
Advantages of Being Tax Exempt
If your organization is eligible, there are several benefits to having tax-exempt status.
- You do not have to pay many taxes, so your organization can use more money to accomplish its goals.
- Your donors can make tax-deductible donations.
- You can more easily apply for grants.
Get the Help You Need
Spivey, Pope, Green, & Greer can help your organization navigate the federal tax exemption application. Contact us today to learn about our experience with helping community organizations do their best work.