If a non-profit wants to be exempt from paying federal and state taxes on earnings from endeavors connected to its exempt purpose, it can petition for tax-exempt status on both the federal and state levels.
This status makes the non-profit eligible benefits, including:
- Federal and state tax exemption: Non-profits that have tax-exempt status are exempt from paying federal and state taxes on income related to their exempt purpose. (Non-profits must apply to their state for state tax exemption).
- Eligibility for grants: Many foundations and corporations only make grants to tax-exempt organizations, so tax-exempt status can make a non-profit more competitive in applying for funding.
- Donor deductions: Tax-exempt status allows individual donors to deduct contributions to the non-profit on their federal income tax returns, which may increase donations.
Benefits to funders and donors of tax-exempt non-profits include:
- Tax deductions: Funders and donors can deduct contributions to tax-exempt non-profits on their federal and state tax returns.
- Support for a cause: Funders and donors can support the cause or mission of the non-profit they donate to, which can provide personal satisfaction and fulfillment.
- Transparency: Tax-exempt non-profits are required to file annual tax returns (Form 990) that provide information about their finances and operations, which can help funders and donors make informed decisions about their contributions.
Because it enables organizations to operate free of federal income tax and, in some situations, state and local taxes, maintaining tax-exempt status is crucial.
This might save the organization a lot of money, which it could then use to further its goals and services.
Additionally, having tax-exempt status can improve a company’s credibility and reputation, which makes it simpler to get grants and donations.
See this video and others on our you tube channel for important links and more important information for your non-profit organization.
