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What is a 501(c)3 nonprofit organization?

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501(c)3 is often thought of when the term nonprofit organization is mentioned; however, not every nonprofit is a 501(c)3 organization. The IRS lists 29 different types of nonprofit organizations; 501(c)3 organizations are one of only three types of nonprofits that qualify for any tax exemptions. To qualify as a 501(c)3 the organization must fall into a qualifying category:

Nonprofit Organization Types

Types of Nonprofit Organizations

Qualifying as a Nonprofit Organization

Does that mean a group can be organized and be labeled as a religious organization? No, each category has qualifications and standards that must be met. Writing a business plan defining the organization as a nonprofit is not enough to qualify for 501(c)3 tax exemption status. These organizations are audited by the IRS in the same manner as other businesses. The government requires 501(c)3 nonprofits to operate under a specific purpose:

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”

501(c)3 Benefits

Some nonprofit organizations may qualify for many benefits including, but not excluded to:

 

  • Federal income tax exemption
  • Federal unemployment tax exemption
  • State income, sales, and employment tax exemption
  • Tax-deductible contributions
  • Postage discounts
  • Tax-exempt Financing

No Taxes

 

 

 

 

 

 

 

 

 

Gaining 501(c)3 Approval

Categorizing an entity as a nonprofit organization does not automatically exempt it from paying taxes or receiving any 501(c)3 benefits. To gain access to these benefits an organization must receive acceptances as 501(c)3 status through the IRS. To apply for tax exemption status with the IRS the organization must:

Applying as Nonprofit Organization

Steps to Completing 501(c)3 Application Process

Many tools are available to assist a nonprofit organization in developing the required elements of the application process. Hiring a consultant may be beneficial when filing for 501(c)3 status; when considering options be sure to verify credentials to avoid scams. Many new organizations realize their need for help but fail to ensure a contractor’s validity and integrity. Use trustworthy sources to recruit freelancers who are as passionate about the mission as the executive staff.

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