So, you've decided to start a nonprofit. That's fantastic news! The world needs organizations like yours out there doing good.
If your organization is going to operate for charitable purposes, it could claim tax-exempt status. To qualify, nonprofits and charitable organizations must operate strictly in the public's interest or for charitable purposes. They cannot work for the profit of any individual or group.
The Internal Revenue Service sets the tax rules for all nonprofits and charitable organizations in the U.S. The IRS recognizes many types of nonprofits, but because 501(c)(3) is the most common type of exemption, we'll focus on that.
There are many benefits to obtaining tax-exempt status. Of course, the most obvious advantage is that any grants, donations, and fundraising income your nonprofit collects are not subject to taxation. This saves your organization precious financial resources, frees up funds for pursuing your mission, and lets you devote more time and attention to serving the public's interests.
Additional benefits of tax-exempt status include:
Exemption from federal income tax
Eligibility for U.S. Postal Service discounts
Access to funding for tax-exempt organizations
Increased credibility
Tax-deductible donations for donors
Your organization must apply with the IRS to gain 501(c)(3) tax-exempt status. To do this, you'll be required to fill out one of two forms — Form 1023