Tax Exemptions

Organizations accepted under section 501(c)(3) of the tax code are exempt from federal tax, thus allowing the organization to focus monetary resources on its operations. They also may be exempt from certain employment taxes. State officials may grant exemptions from state income, sales and property taxes.

Tax Deductible

Since 501(c)(3) organizations are allowed to receive tax-deductible donations, benefactors receive a financial benefit for donating to the organization. The benefactors are allowed to deduct the value of the contribution on their annual taxes.

Access to Grants

Many institutions offer grants and other financial incentives to organizations that are 501(c)(3) tax exempt.

Types of Organizations

The Internal Revenue Service limits the types of organizations that qualify for 501(c)(3) status to those that are organized for one or more exempt purposes including, "religious, charitable, scientific, ...public safety, literacy, educational, fostering ... amateur sports competition... [and] the prevention of cruelty to children or animals."

Qualification

To qualify for a section 501(c)(3) tax-exempt status, organizations must have an "articles of organization," which explains the specific purpose of the organization. The organization must also complete an IRS form 1023, which asks the IRS for "recognition of exemption." In addition, organizations must complete a Form 990 each year.

Limitations

The IRS restricts organizations with a 501(c)(3) status from political lobbying. In addition, the organizations should not be profitable or financially beneficial to individuals.

Source:

Internal Revenue Service: Applying for 501(c)(3) Tax-Exempt Status

Internal Revenue Service: Exemption Requirements -- Section 501(c)(3) Organizations