Running a nonprofit is hard work. It also can be rewarding. So it is important to understand the benefits, such as tax-exempt status, when you’re preparing to launch a community, charity, or nonprofit organization. Establishing a tax-exempt nonprofit isn’t easy, and you may be wondering how aspects of these tax rules apply to your nonprofit. A lot of moving parts need to be handled, and they are best handled by professionals.

Understanding the Application Process Basics

It is important to understand two basic steps for nonprofits regarding tax status: First, you need to maneuver the application process to ensure that you are categorized properly. Second, you need to learn how to maintain this tax status throughout the life of the organization so that important issues are not overlooked and money is not lost. As an executive, you must understand these issues and you also need to ensure that your staff and board are on the same page.

The most complicated part of this process for most nonprofit organizations is to balance the state requirements for nonprofit status and the federal guidelines for being a tax-exempt entity. You need to ensure that you maintain all the right documentation from the establishment of the organization. You need to determine what kind of organization you are, including a trust, corporation, or association. And you also need to register your organization within your own state. Doing so, will give you an Employer ID Number or EIN.

The complexity doesn’t stop there. Once you’ve established this information, the next hurdle will be deciding whether you are a going to establish 501(c)3 status for charitable, religious, or educational organization, or a 501(c) for other types of nonprofits. You then have to complete the correct forms and ensure that you adhere to the proper filing process.

Maintaining Your Tax-Exempt Status

Now that you’ve established your organization, you must maintain your nonprofit status. Although this may sound simple enough, it really isn’t. The most important thing nonprofits have to do to maintain their tax-exempt status is file an annual report. But the how’s and why’s of completing this process will vary depending on the type of organization and the associated requirements.

For these and other complex reasons, it is essential that you work with an expert to help you navigate the process. Although you can do it all on your own, the risk of missing important steps is too great, which can affect the viability of your organization in the future.

Nonprofit organizations are critical to our nation’s future. If you feel overwhelmed, talk with an MCB expert today to help you apply for and maintain your tax-exempt status moving forward.

Contact a Not-for-Profit MCB Advisor at 703-218-3600 or click here. To review a summary of recent articles related to exempt organizations, click here. To learn more about MCB’s Not-for-profit practice, click here. To learn more about MCB’s tax practice and our tax experts, click here.


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