Non-Profit Organization Tax

A non-profit organization is a business entity that operates primarily for the purpose benefitting the general public through charitable, educational, religious or scientific endeavors. Since the goal of a non-profit organization is not to obtain a monetary profit, most non-profit organizations use all of their proceeds to further their charitable causes rather than to realize a financial gain.

The specifics of non-profit organization tax:

  • A non-profit organization will only be granted federal tax exempt status if it meets specific requirements identified by the Internal Revenue Service.
  • An incorporated non-profit organization will generally be granted tax exempt status if it is organized and operated exclusively for charitable purposes and turns over the entire amount of its proceeds to the charitable purpose for which it was organized.
  • If a non-profit organization engages in any activities that are outside of the charitable purposes for which it was organized, it may be required to pay income taxes on any proceeds resulting from those activities.
  • Although a non-profit organization may be exempt from paying federal income taxes, the exemption from paying state income taxes varies according to the state.
  • Unincorporated non-profit organizations are not given federal tax exempt status.

When a non-profit organization is granted tax-exempt status, it may also be exempt from paying state and local sales taxes, property taxes and taxes on other assets. If the organization has paid volunteers, it is required to pay employment taxes for those workers just like any for-profit company. These taxes include federal and state income taxes, Social Security and Medicare taxes, workers’ compensation taxes and unemployment taxes.

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