Friday, April 27, 2012

Receiving Tax-Exempt Status

It is a popular misperception that all nonprofits are automatically tax exempt (not expected to spend taxes on their earnings). But it is just that, a misperception. Rather, nonprofit organizations will need to apply and be granted tax-exempt status from the Internal Income Service (IRS).

Receiving Tax-Exempt StatusThe objective of one's nonprofit organization determines no matter if or not it might operate with or devoid of tax-exempt status. In case your organization relies on contributions, tax-exempt status is very desirable for the reason that your organization are going to be improved in a position to attract donors that are motivated, in element, by the availability of a tax deduction. Conversely, in case your principal supply of income comes from membership dues plus the provision of services, a tax exemption may perhaps be much less desirable for the reason that taxpayers can normally deduct dues as a home business expense.
To acquire tax-exempt status, a nonprofit organization will need to meet a difficult set of criteria set forth beneath the U.S Internal Income Code. Section 501(c) of your Internal Income Code identifies the sorts of organizations that qualify for tax-exempt status, when Section 170 dictates how and when taxpayers who contribute to them may perhaps take their deductions.

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