How To Get a Non Profit Tax Exempt Number
Knowing how to get a non profit tax exempt number is a necessity for charitable organizations to register for federal tax-exempt status.3 min read
2. Conditions of Tax Exemption
3. Registering for Tax-Exempt Status
4. Benefits of Tax-Exempt Status
Knowing how to get a non profit tax exempt number is a necessity for charitable organizations to register for federal tax-exempt status. The U.S. is currently home to about 2 million nonprofit organizations that qualify for tax-exempt status under 501(c) regulations, including schools, arts organizations, labor groups, clubs, political campaigns, churches, civic groups, and many others.
Types of Tax-Exempt Organizations
Some of the most common types of tax-exempt non-profit organizations are as follows:
- Churches and religious organizations, including mosques, synagogues, ministries, and organizations that study and promote religion
- Educational organizations, including schools, institutes of higher education, zoos, and museums
- Social welfare organizations that support community well-being, such as housing development associations, volunteer firefighters, annual festivals, and other events and services
- Labor organizations that use collective bargaining to seek better conditions for employees, such as higher pay, medical care, time off, and other benefits
- Agricultural and horticultural organizations that raise livestock, engage in forestry, cultivate plants, harvest crops, provide education, test soil for the benefit of community members, and exhibit farm products or livestock
- Fraternal orders, societies, and associations defined as groups organized under a lodge system to pursue a common goal
- Organizations conducting scientific research for the public good, provided that all methodology and results are made public
- Trade organizations, including professional football leagues, chambers of commerce, industry organizations, and trade boards
- Social clubs with members who meet for fun and recreation and which do not discriminate based on race
- Veterans' organizations that engage in functions approved by the IRS
These groups fall into categories established by the IRS, including:
- 501(c)(2) — Title Holding Corporation for Exempt Organization
- 501(c)(3) — Religious, Educational, Charitable, Scientific, Literary, or Prevention of Cruelty to Children or Animals Organizations
- 501(c)(4) — Civic Leagues, Social Welfare Organizations, and Local Associations of Employees
- 501(c)(5) — Labor, Agricultural and Horticultural Organizations
- 501(c)(6) — Business Leagues, Chambers of Commerce, Real Estate Boards, etc.
- 501(c)(7) — Social and Recreational Clubs
- 501(c)(8) — Fraternal Beneficiary Societies and Associations
- 501(c)(9) — Voluntary Employee Beneficiary Associations
- 501(c)(10) — Domestic Fraternal Societies and Association.
Conditions of Tax Exemption
Non-profits that qualify for IRS tax exemption do not have to pay most federal income taxes. They are exempt from state sales and property tax, though rules vary by state. If an organization has 501(c)(3) status, donors can deduct the value of charitable donations on their individual income tax returns.
In some cases, activities that are not related to the organization's core business will be taxed. Only individuals who itemize their return can deduct the value of charitable donations.
To receive 501(c)(3) tax exemption, non-profits must pass three tests:
- The organization test requires that the organization is engaged in activities categorized as religious, scientific, literary, charitable, educational, preventing cruelty to children or animals, public safety testing, or national or international amateur sports.
- The political test requires organizations to avow in their formation documents that they will not earn money for political purposes nor participate in political campaigns.
- The asset test prohibits these organizations from distributing business income or assets to individuals beyond reasonable compensation for their services. This includes a specific statement that income will not be used to benefit or create personal gain for founders, family members, associates, supporters, or employees.
Registering for Tax-Exempt Status
First, you'll need to file articles of incorporation in your home state to establish your nonprofit organization. This document must include a comprehensive explanation of the purpose of your organization and its mission and vision, which will be used to help determine your eligibility for tax exemption.
You must register for an employer identification number (EIN) with the IRS by filing Form SS-4. Next, file Form 1023 or 1023-EZ to apply for 501(c)(3) status. The latter has a fee of $275 and the full form requires a fee of $600.
If you submit Form 1023 within 27 months of incorporation, your tax-exempt status will be retroactive to your incorporation date. After the 27th month, your status is retroactive to your application date.
Some states honor federal tax-exempt status, while other states require a separate application.
Benefits of Tax-Exempt Status
Becoming a 501(c)(3) organization will make your company eligible for certain public allocations and grants. As a tax-exempt organization, you'll also have increased credibility with donors and stakeholders. In most cases, you can qualify for lower postage rates.
If you need help with getting a non-profit tax-exempt number, 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, Menlo Ventures, and Airbnb.