Nonprofit organizations are typically tax-exempt. However, it doesn’t mean your organization is excluded from Internal Revenue Service (IRS) dealings. Here, get answers to common questions about nonprofit organizations and tax planning to gain a deeper understanding of what your charity needs to do.

Frequently Asked Questions About Tax Planning & Nonprofit Organizations

What are the tax designations for nonprofits?

Most nonprofit tax designations fall under the 501(c)(3) umbrella. These organizations provide charitable aid in a variety of ways, such as funding homeless and women’s shelters, and receive donations their supporters can subsequently deduct from their taxes. To enjoy status as a 501(c)(3) nonprofit, an organization must provide charitable, educational, scientific, or literary work and assistance. Other 501(c)(3) organizations include churches, those that prevent animal and child cruelty, and facilities that provide public safety testing.

Other nonprofit designations include 501(c)(6) and 501(c)(7) for organizations such as Chambers of Commerce and public recreational facilities, respectively. These organizations do not receive charitable donations, but still serve their communities.

How does an organization apply for tax exemption?

A nonprofit must apply for tax exemption using one of the IRS’s three current forms, such as Form 1023-EZ, to apply for Section 501(c)(3) status. The IRS provides instructions for each form, including specific filing steps and information on organization eligibility. Nonprofits must file these forms annually to maintain their tax-exempt status. Applications can be rejected for numerous reasons, including failing to fill out a form completely or correctly.

Do nonprofits pay application fees?

All tax-exempt forms include application fees, which are outlined by the IRS. Filing Form 1023-EZ, for example, includes a $275 application fee. Other fees can cost thousands of dollars depending on their file date, such as submissions postmarked on or after July 1, 2020, requiring a $2,500 application fee.

Are there instances when a nonprofit must file taxes?

Nonprofits who are exempt from taxation still must file if they operate businesses in conjunction with their organizations. A church that runs a consignment shop to earn extra money for charitable activities and events, for example, must file the appropriate forms and pay taxes unless they are operating at a loss. Professional tax planning assistance can provide the guidance organization officials need to avoid problems such as late fees.

If your organization requires tax planning help or you need financial service assistance for any other reason, contact Wilson, Rea, Beckel, & Associates, CPAs, LLC.  Based in Pagosa Springs, CO, and serving the Four Corners area, this bookkeeping and accounting service makes handling finances significantly less stressful. Call (970) 731-1040 today for help with your nonprofit or learn more about tax planning services online.