IRS Tax Exemptions, Simplified

Operating as a tax-exempt organization offers many advantages, not the least of which is the financial savings of not having to pay any taxes. Understanding what types of organizations can be tax exempt, how to become exempt from taxes, and other things about the process is very important. In every case, it is helpful to have an experienced tax attorney available to review your situation, and help determine if operating as a tax-exempt entity is possible. If you’re looking into this as a possibility, please contact us to discuss your situation.

How to Become Tax-Exempt

The first thing to note is that, generally speaking, when an organization is seeking to become tax-exempt, it is most often referring to federal income taxes. Becoming tax-exempt at the federal level will sometimes also eliminate many types of state taxes at the same time. The other important aspect of becoming tax-exempt is that contributions to certain tax-exempt organizations will be tax-deductible to the donor.

In order to achieve this status, an organization will usually need to fill out the proper paperwork to apply for a recognition of exemption. The application process will require you to supply detailed information about your organization, and why it should be exempt from federal taxes. In most cases, there is also a fee for having the application reviewed by the IRS, called a “user fee”. With this in mind, it is important to get everything done correctly the first time.

Non-Profits & Tax Exemption

Many people believe that being tax-exempt and operating as a non-profit are essentially the same thing. While most non-profit organizations can successfully apply for tax-exempt status, they are not the same thing. Non-profit status is something governed by individual states. Becoming a non-profit is often something that should be done alongside seeking tax-exempt status because it can offer additional benefits and savings. Applying for both of these statuses at the same time can help to begin achieving the savings your organization desires as quickly as possible.

What Types of Organizations Qualify as Tax Exempt

There are many different types of organizations that can qualify to operate as a tax-exempt entity. If you operate one of these types of organizations, it is very likely that it can qualify to eliminate the federal income tax burden it has to pay. The following are some of the most common examples:

  • Charitable Organizations
  • Churches
  • Social Welfare Organizations
  • Social Clubs
  • Fraternal Societies
  • Veterans’ Organizations
  • Political Organizations

It is important to note, as is often the case, that not all “tax-exempt organizations” are “equal”: not all of these organizations are exempt from all federal income taxes in all circumstances, some of these types of organizations are subject to special rules and restrictions, and contributions to some of these organizations will not be tax-deductible.  Just another reason to have experienced tax counsel at your side at the outset.

We’re Here for You

If you believe your organization may qualify for tax-exempt status, Morgan Maxwell can help to determine if that is the case, and if so, help you complete the application process right away. When done correctly, it can help you to save thousands of dollars for years to come.

Written by E. Morgan Maxwell

E. Morgan Maxwell

Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.

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