Why Do NonProfits File For Federal Tax Exemption?

​Deciding to establish a nonprofit organization is a process.  One of the key task to accomplish is filing for federal tax exemption.  "You will need to file with the Internal Revenue Service for tax exempt status under Section 501©.  Form 1023 is the multi-page form you will need to file.  Within three to six months of submitting your paperwork, you generally will receive a letter, granting tax-exempt status to your organization."

"​Organizations that achieve 501©(3) status are exempt from federal taxes, and contributions given to them are deductible by donors for income tax purposes.  Certain states allow state-level tax-exempt status, and in such cases, the net profit is also exempt from payment of state income taxes.  In addition, the overwhelming majority of private foundation in the U.S. award grants only to organizations that have this particular tax-exempt status."
 
If you are planning to apply for the tax-exempt status, here are a few tips that may help save time and effort with the IRS.

• Submissions to the IRS must include the correct user fee.  If you are not sure, contact the IRS before submitting your application
• Attach a complete copy of the organizing documents.  Those documents, which should include a detailed business plan, include a complete copy of the articles of corporation that shows it has been filed with and approved by the state.
• Complete all required pages.  The information contained on each page and schedule of Form 1023 and Form 1024 is necessary for the IRS to make the proper determination.

 
Maintaining a tax-exempt status does have its benefits also:

• Donations to the nonprofit are tax-deductible
• Access to grants earmarked for 501 (c)(3)s
• Possible state sales and property taxes exemption

You can find more tips by visiting the IRS website.
 
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