Nonprofits are organizations that operate for advancing or supporting a public interest. Unlike businesses, they do not operate for monetary profit. Given these differences, most nonprofit organizations can qualify for tax-exempt status—a benefit that can eliminate federal and state tax responsibilities. However, qualifying for and maintaining this status can be complicated and often requires support from professional accounting services.

5 FAQ About Paying Taxes as a Nonprofit

Are there different types of nonprofits?

501(c)(3) organizations are the most common and refer to entities that make charitable contributions to a specific cause. Other types can include educational foundations, day cares, social welfare groups, professional associations, as well as certain pensions and retirement funds.

Since the type can impact the specific taxes you are exempt from, it’s important to consult with your accounting services provider to determine your organization’s responsibilities.

What qualifications are required by the IRS for 501(c)(3) status?

If you’re launching a charitable organization, you will have to meet these three qualifications to gain tax-exempt status from the IRS:

• Organizational Test: Defines the purpose of the entity within the approved IRS include. These categories include charitable, cruelty prevention, educational, fostering amateur sports competitions, literary, public safety, religious, and scientific purposes.
• Political Test: Official statement that the organization will not participate in or spend funds on any political campaign.
• Asset Test:  Charter statement that prohibits asset or income distribution to individuals, except as part of fair compensation. Those connected to the organization must also not use the entity for personal gain.  

How does a non-profit apply for tax-exempt status?

The IRS typically requires organizations to fill out specific forms that pertain to their classification. Since errors and missing information can slow down the application process, it’s a good idea to have your accounting services review the completed forms for accuracy.

When are nonprofits responsible for paying taxes?

When income is not directly related to the organization’s cause, it may not qualify for tax exemption. Consult with an accountant to determine what revenue may not be applicable.

What are the filing requirements for nonprofits?

In regards to federal taxes, organizations must file the appropriate 990 forms if they collect $50,000 or more income. Those who collect more may only need to file an annual electronic notice.  State requirements can vary depending on location.

When you run a nonprofit, Grayson Accounting offers comprehensive support to guide you through the tax-exemption process. With over 25 years of experience with bookkeeping and accounting services, this St. Charles, MO firm knows how to quickly and accurately prepare the IRS application and annual filing forms that ensure your organization remains compliant. They are also qualified to provide IRS representation when necessary. To learn more about their nonprofit and business accounting capabilities, visit this provider online or call (636) 233-7875.