As tax season approaches, individuals and businesses throughout the country feel the pressure of filing. But what about nonprofit organizations? If you’re simply making money to benefit a cause, do you need to give a portion to the IRS? If you’re hoping to learn more about this unique situation, take a look at the following frequently asked questions and their answers.

What You Should Know About Nonprofit Taxes 

Are nonprofit organizations required to pay income tax?

When you’re collecting money for someone or something else, it doesn’t necessarily qualify as income. Therefore, nonprofit organizations are not required to file federal income taxes. Similarly, those who donate to nonprofit organizations do not have to pay taxes on the amount they give. 

What criteria do you have to meet?

To be exempt from paying the IRS, nonprofit organizations must not strive for commercial or financial profit but operate only for science, religion, public safety, or other charitable purposes. From all the money they collect, they must only take out funds for necessary expenses, and the rest must be given wholly to the charitable cause. 

How do you become tax-exempt?

To become exempt from income taxes, you’ll need to apply for 501(c)(3) status under the federal tax code. You’ll also have to prove that your organization is not involved in a political campaign and that none of your assets or funds are given to individuals. This prevents the organization’s founders and supporters from seeking financial gain without paying income taxes.

What taxes are required?

Although nonprofit organizations do not have to file income taxes, property taxes, or sales taxes, they are required to pay employment taxes for the people they hire. For example, while they might work with plenty of volunteers, the receptionists, data entry employees, and other administrative personnel need their employer to pay into Social Security and Medicare.

If you have additional questions about the tax rules for your organization, reach out to Simplified Tax in Sparta, WI. For over three decades, this locally owned and operated company has been helping customers take control of their tax liability. If you are exempt from income taxes, they can also provide payroll and management consulting services, or help you manage your donations with computerized programs. To learn more about their skills, visit the website or call (608) 269-2633 today.