Nonprofits are a significant benefit to the community at large—and thankfully, due to this, can receive tax breaks from the Internal Revenue Service (IRS). Section 501 of the tax code provides exemption from federal taxes to qualified nonprofit organizations. These organizations are typically defined as engaging in activities for both public and private interest without seeking monetary gain.

To be considered tax-exempt under section 501(c)(3) of the Internal Revenue Code, organizations must be operated for their exempt purposes only. Absolutely none of its earnings should go to a private shareholder or individual. This organization also cannot, in any form, attempt to influence legislation—i.e., participate in a campaign involving political candidates.

Those organizations that meet the criteria listed in section 501(c)(3) of the tax code are referred to as “charitable organizations” and are eligible to receive tax-deductible contributions (in accordance with section 170 of the Code). If, for any reason, a charitable organization monetizes a service in some way, such as selling t-shirts for a program they run, that income may be subject to an income tax.

In terms of federal taxes, nonprofits are exempt from sales tax and property tax. Although, while this is true, there are still employee taxes to contend with, such as Social Security and Medicare—which is the same as for-profit companies. To learn more about tax issues for nonprofit organizations, visit the IRS website.

We excel in assisting clients with general financial help, such as by analyzing tax breaks and where our clients might find them. For more information about the specifics of taxes in nonprofit organizations, contact Atherton & Associates, LLP.