Nonprofit and Charitable Organizations
There are many types of nonprofit organizations and each has its own unique filing requirements. In general, to set up a nonprofit, you must establish a board of directors and incorporate.
Nonprofit organizations are not automatically tax exempt organizations. If you wish to become tax-exempt, you must file Form 1023 with the Internal Revenue Service (IRS). Nonprofit organizations that do not have tax exempt status have to pay federal, state, and local income taxes.
Most states accept an IRS ruling of an organization’s tax exempt status, and automatically exempt the organization from state taxes as well. However, in some states, like California, you must apply separately to the state in order to be exempt from state taxes.
- Pros and Cons: The advantages and disadvantages of establishing a nonprofit vary considerably depending upon the type of organization you are creating. Tax-exempt organizations may be eligible for retail discounts, reduced postal rates, and can provide tax receipts to donors. Nonexempt organizations may not give tax receipts.
