Benefits of a 501c3

Benefits of a 501c3
Benefits of a 501c3

Benefits of Tax-Exempt Status under IRS Section 501c3

Tax exemption under Internal Revenue Code section 501c3 provides organizations with the following benefits:

    • Exemption from Federal income tax;
    •  Tax-deductible contributions;
    •  Possible exemption from state income, sales, and employment taxes;
    •  Reduced postal rates;
    •  Exemption from Federal unemployment tax; and
    •  Tax-exempt financing.

 Tax-Exempt Organizations and 501c3's

A tax-exempt organization can be a trust, unincorporated association, or nonprofit corporation described in the Internal Revenue Code as being exempt from Federal income tax. A 501c3 is a type of exempt organization. It must be organized and operated for one or more exempt purposes described in IRS Code section 501c3:

    •  Charitable,
    •  Educational,
    •  Religious,
    •  Scientific,
    •  Literary,
    •  Testing for public safety,
    •  Fostering national or international amateur sports competition, and/or
    •  Preventing cruelty to children or animals.

Difference Between Nonprofit & Tax-Exempt

Many people often mistakenly believe that all nonprofits automatically have IRS 501c3 tax-exempt status. This is not true. Here is the difference between a nonprofit corporation and tax-exempt organization:

  • nonprofit status refers to state-law corporate status
  • tax-exempt status refers to state and federal tax exemption under tax regulations.

Many nonprofits are organized as both a nonprofit corporation and a tax-exempt entity.
A nonprofit organization, whether incorporated or not, can decide whether or not it wants to apply for tax-exempt status from the IRS and the state.

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