How to Get a Tax Free Status
A business or institution with a mission of bettering a community or bringing essential services to a certain population may be eligible for status as a nonprofit or tax-free organization. To obtain that right, the organization needs to demonstrate that revenues over expenses go back into an operating budget, and that those who run or work for the organization are not making a major financial profit. Charities, churches, day care centers, human service agencies, schools, colleges, museums, trade organizations, along with certain fraternities and social clubs are among the types of institutions not required to pay local property taxes, and if applicable, receive some exemptions on state and federal income taxes. There are some universal guidelines to follow at the state and federal level to obtain tax-free status.
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Instructions
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Define the agency's mission, make sure there is a qualified board of directors to oversee the agency and base all of its activities on that mission. Include the mission statement on the necessary article of incorporation that must be completed and included in the application for state and federal non-profit status.
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Apply for 501(c)(3) tax-exempt status with both the appropriate state agency and the IRS; the required forms may include a mission statement, budget information and an organizational chart that lists everyone involved with the organization, among other documents. According to Gaebler.com, Resources for Entrepreneurs, you should file the 501(c)(3) application forms early in the process.
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Complete the other forms, once the tax-free status is established with the IRS, for local and state tax breaks. This includes the paperwork for property tax exemption, insurance coverage and a bulk mail permit. Many of these tasks can be accomplished after the organization is up and running. Your state department of state or a different state agency that handles nonprofit designations can guide you through the process.
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Remember that to maintain the tax-free or non-profit status, the agency is required to submit some forms on a regular basis, though not necessarily annually, according to the IRS. Filings vary by type and size of organization and amounts or annual revenues.
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Tips & Warnings
Legally, a lawyer's signature is not required on any of the documents required in the non-profit certification process, but such organizations are strongly advised to have an attorney guide them through the process.
Federally-recognized Indian tribes are also eligible for tax-free status, but there are different laws governing the parameters of those types of arrangements not related to religions, charities or community institutions.
Tax-free or non-profit status does not mean employees of an organization are exempt from income tax or Social Security (FICA) contributions.
