In Blog, Taxes for Businesses

So you’re ready to go with your non-profit LLC or corporation, you’ve started the business itself and are already doing what you do best! Now the last, and perhaps most important, step is to gain tax-exempt status in the eyes of the government.

gaining tax exempt status for non profits D&M AccountingDifference Between Nonprofit and Tax-Exempt

Gaining recognition as a nonprofit is a state-level concept, and does not automatically grant federal income tax-exempt status until you file the correct tax forms and are approved.

Tax-Exempt Status / Nonprofit Status

Benefits that come from having a 501(c)(3) tax-exempt status include deducting donations, grant money access, and exemptions for income and property taxes.

While you’re organizing your company, you must obtain an EIN (employer ID number) and list within your articles of incorporation a few clauses stating:

  • Your business was formed to be recognized as a 501(c)(3) tax-exempt purpose.
  • Any assets that remain after the business dissolves will be given to another tax-exempt nonprofit, or to a federal, state, or local government for a public purpose.

501(c)(3) Rules and Requirements

Once your organization is, well, organized, fill out IRS Form 1023EZ or Form 1023. This latter form is a bit technical and can become very involved. If you would like assistance with it, feel free to contact us.  *if filing for something other than 501(c)(3), utilize Form 1024.

To ensure you take advantage of all of your donations and such as soon as you’re incorporated, you must file the form within 27 months of the date that you file your incorporation papers.

When you begin filling out your form, you’ll want to remember all activities done by your business past, present, and future, and be able to explain the activities so it is clear why they have a tax-exempt purpose.

You’ll also need the founding date / expected founding date, where and by whom the business will be conducted, and how it will be funded.

Be ready to list various employees including the top five that will earn over $50k per year as well as the top five contractors earning over $50k. You must also mention any goods or services you will be providing, and ensure you’ll be providing these to all members of the public (rather than a certain group of individuals).

Applications are processed as quickly as they can be (the IRS receives over 70,000 per year!), and reasons for a delay can include small errors or typos, to qualification questions. Make sure to at least double or triple check your papers (or have a professional check them over) before sending them to avoid any delays. Track your application here. Expect to be contacted about a 1023-EZ form within 90 days, and within 180 days for 1023 and 1024 forms.

If you’re still unsure about this process, or would rather not handle it at all, contact D&M Accounting and one of our professionals will be glad to assist!


For more info, visit the IRS Before Applying page and the Tax Exemption FAQ page.

Recent Posts