Non Profit Doesn’t Necessarily Mean Tax Exempt

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If you are involved with an organization who has a primary mission that would be considered charitable in nature, you may consider yourself a non-profit organization. These organizations, however, are often the subject of confusion when it comes to the laws and designations which govern them. If your organization is new or doesn’t currently have any type of official designation, it is in your best interest to register your non-profit with state and federal agencies in order to qualify for all of the benefits that are allowed under current law. However, you should not assume that non-profit always means tax exempt.

Non profit corporations have many of the same duties and guidelines as for-profit corporations in order to satisfy state and federal reporting requirements. The first step is to draft your articles of incorporation. These articles will be used by your state to ascertain if you qualify for non-profit status so the drafting of these articles should be done using specific guidelines.

The most common designation is the 501(c)(3) designation which covers churchs and church organizations, educational entities, and many others. Hospitals and Chambers of Commerce carry other designations. It is vital that you read the qualifications for each of these designations in order to draft your articles correctly.

You may have filed for non-profit status but that doesn’t necessarily mean that you are tax exempt. Before your non-profit receives tax exempt status, form 1023 must be submitted to the IRS. This is often a complicated form that requires a fee be paid based on previous years’ sales figures.

In addition to these requirements, non profit corporations must set budgets and have regular meetings where detailed minutes are kept. In order to maintain the legal designation that comes with being a non-profit corporation, managers must diligently keep up with all actions. In short, it is important that an organization not function as a personal entity. If that happens, the non-profit may lose the “corporate veil” that allows corporate assets to be shielded from personal assets.

As with most laws regarding money, various states have differing laws that govern non-profits. Some of these laws may require you gain the help of a business registration service. These services are relatively inexpensive and have knowledge of the steps that you must take to register your non-profit. The small fee is probably worth the amount of time you will save trying to gain knowledge of state and federal laws.