ANSWERS: 1
  • A tax exempt number is a federal status, separate from nonprofit status, which is granted by states. Tax exemption at the federal level follows the establishment of a business' Employer Identification Number (EIN). Both numbers can be easily obtained through the Internal Revenue Service (IRS) website. Generally, a tax exempt number for federal tax purposes is only granted to entities that have a government purpose or a social/societal end the government wishes to promote. Therefore, churches and charitable organizations are granted tax exempt status, as are certain areas of taxation, i.e. the tax deduction for home mortgage.

    Register Business

    The first step in getting a tax exempt number is to apply for a federal taxpayer identification number (TIN). This is also known as an EIN. TIN/EIN numbers are nine-digit numbers the IRS assigns to business entities: employers, corporations and non-profit organizations. This also applies to individuals who run businesses. After applying for an EIN a second application must be made for recognition of tax exemption status.

    Tax Exemption by State

    Exemption from taxes, such as sales taxes, are determined at the state level. Nonprofit status is likewise an issue of state law. Nonprofit status may make an organization eligible for sales, property and income tax exemptions at the state level. Organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax. Federal income tax exemption requires filing for such status with the IRS. Forms for such filings are available at the IRS website.

    Tax Affirmation Letter

    Government entities are frequently asked to provide a tax-exempt number or "determination" letter to prove tax-exempt or charitable entity status. A 501C or nonprofit organization provides this letter with applications for grants from private foundations or other charitable organizations. Donors to nonprofits and charities often ask for a tax affirmation letter to substantiate that their contribution is tax deductible; vendors use this information to determine that an organization is exempt from sales or excise taxes. A tax affirmation letter can be obtained by following the instructions detailed in IRS Revenue Procedure 2009-1. There is a fee for this filing.

    Source:

    IRS.gov: FAQs About Applying for Tax-Exemption

    IRS.gov: Publication 557; Tax Exempt Status for Your Organization

    More Information:

    U.S. General Services Administration: State Tax Exemption Forms Overview

    IRS.gov: Small Business/Self-Employed Virtual Small Business Tax Workshop

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