Questions About Nonprofits in Chicago
Nonprofit organizations are vital to the economy and provide valuable services to consumers and individuals of all ages2 min read
Nonprofit organizations are vital to the economy and provide valuable services to consumers and individuals of all ages. However, with the Tax Cuts and Jobs Act of 2017, it has become increasingly challenging for organizations to meet their nonprofit status requirements. In order to help nonprofit organizations, this article will answer some frequently asked questions related to the regulations and restrictions surrounding nonprofit organizations based in Chicago.
What is a Nonprofit Organization?
A nonprofit organization is an organization that is designated as a nonprofit by the Internal Revenue Service (IRS). These organizations are exempt from federal and/or state income taxes. Nonprofits engage in activities that are beneficial to the public with a primary goal of furthering the mission and goals of an organization instead of making a profit. Common examples of nonprofit organizations include charities, foundations, churches, and trade organizations.
Are Nonprofits Required To Pay Taxes?
No, nonprofit organizations are typically exempt from federal and state income taxes. Nonprofits are, however, required to pay employment taxes such as Social Security, Medicare, and state and federal unemployment taxes. Also, individual members of nonprofit boards of directors may be responsible to pay taxes on their income or profits that originate from the nonprofit.
What Is the Process for Becoming a Nonprofit in Chicago?
In order to become a nonprofit in the Chicago area, you must first obtain an employer identification number (EIN) from the IRS. Once you have your EIN, you must file Articles of Incorporation with the Illinois Secretary of State. Once this paperwork is completed and approved by the state, you must then file an Application for Exemption from taxes with the IRS and provide detailed information about your organization’s operations, finances, and purpose. Once these steps are completed, you must also take additional steps to maintain your organization’s nonprofit status, including filing annual tax forms, creating financial policies and procedures, and ensuring that all operations are conducted in a manner consistent with the organization’s mission and purpose.
What Are the Restrictions for Nonprofits in Chicago?
There are certain restrictions for nonprofits in Chicago that are intended to ensure that organizations are operating in a manner consistent with their mission and purpose. For example, nonprofits may not use funds for the purpose of private gain or benefit, nor may they engage in activities that are unlawful. Additionally, nonprofits may not participate in activities that are not in furtherance of their mission, such as engaging in political activities or attempting to influence legislation. In addition, nonprofits are prohibited from providing certain “unreasonable private benefits” to individuals and must also operate within their governing documents.
Nonprofit organizations are important to society, providing valuable services to individuals and groups of all ages. In order to help nonprofits comply with the regulations and restrictions surrounding their operations, this article has answered some frequently asked questions about nonprofits in Chicago. Understanding the application process, tax regulations, and restrictions associated with a nonprofit organization will help ensure that it is operated in accordance with the law.