Benefits of 501c3: Everything You Need to Know
Some benefits of a 501(c)(3) status are exemptions from the following: federal taxes, local taxes, property taxes, sales taxes, and payroll taxes.4 min read
Some benefits of a 501(c)(3) status are exemptions from the following taxes:
- Federal taxes
- Local taxes
- Property taxes
- Sales taxes
- Payroll taxes
Who Grants and Who Can Be Granted 501(c)(3) Status?
The IRS (Internal Revenue Service) grants the 501(c)(3) status to nonprofit organizations. Some of the missions that qualify a nonprofit organization for 501(c)(3) status are as listed below:
- Animal welfare
- Anti-child abuse
- Public safety testing
More Perks of a 501(c)(3) Status
- You can make a living while trying to make the world a better place because nonprofits can fetch a steady income. You also have the benefit of a sense of fulfillment for bettering the world.
- A nonprofit can enjoy lower postage rates for mailing more than 250 similar copies of mail.
- A nonprofit with a 501(c)(3) status can benefit from free (but limited) public service announcements on TV and radio.
- The directors and officers of nonprofits with 501(c)(3) status can enjoy limited liability for the operation of the organization. A few exceptions are unpaid taxes and gross negligence, for instance.
- An organization with a 501(c)(3) status continues to exist even after the death of its founder(s).
- An organization with 501(c)(3) status can also benefit from available private and government grants.
- Various employee fringe benefits that aren't typically available to business owners and self-employed persons are available to the founders and staff of organizations with 501(c)(3) status. Some examples of such benefits are health insurance, group life insurance, payment of approved corporate retirement and pension plans, and other medical expenses.
- Certain businesses and stores offer discounts to nonprofits and their employees. Some publications also offer nonprofits advertising discounts.
- Walmart, for instance, like many other businesses and stores, readily offers nonprofits and their staff discounts if they're able to present a copy of their 501(c)(3) status document issued by the IRS.
- The moment your organization achieves 501(c)(3) status, it is permanent. You'll never have to renew it.
A 501(c)(3) Status for Churches
For religious organizations like churches and their congregations, only pastors can benefit from certain tax benefits. A church has to have 501(c)(3) status in order to have a group exemption for the branches and extensions under it. If a church has to invite a pastor from a foreign country to the U.S. to preach or oversee a church, it would be more expensive and would take longer to accomplish if the church didn't have 501(c)(3) status. The Bill Emerson Good Samaritan Act requires all nonprofit organizations, including churches, to acquire a 501(c)(3) status in order to enjoy its benefits.
The Bill Emerson Good Samaritan Act
Through the Bill Emerson Good Samaritan Act, Congress excuses food organizations, such as restaurants and other kinds, from criminal and civil liability associated with food donation to nonprofit organizations that aid needy individuals. The act protects donors in every U.S. state from criminal and civil liability for their contributions of “apparently wholesome food” made in good faith. However, such donations are expected to satisfy every quality and labeling regulation imposed by the government even if the food isn't marketable owing to age, lack of freshness, appearance, size or some other condition.
Disadvantages of a 501(c)(3) Status
- It takes a lengthy, complicated process to apply and qualify for a 501(c)(3) status. Furthermore, it requires multiple payments.
- It requires compliance with various regulatory demands, some of which are the annual submission of reports to state and federal agencies.
- Profits can't be divided equally. Managers can only earn reasonable salaries.
- It can't pay its board of directors.
- It has the responsibility of distributing its assets to other nonprofits if it gets dissolved.
A Corporation or a Nonprofit With a 501(c)(3) Status?
If you aren't sure whether to file as a corporation or a nonprofit with a 501(c)(3) status, consider the following questions:
- Does flexibility mean more to your organization than cost benefits?
- Will investors be attracted to your organization by potential ROI (return on investment) or will your organization raise funds more easily by being able to receive donations with tax exemption?
- Can your organization attract competent leadership with limited compensation?
- In spite of the paperwork-related hassle involved in filing as a nonprofit organization with a 501(c)(3) status, will your organization be able to concentrate on your cause or mission?
If you need help with the benefits of a 501(c)(3) status, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.