What does the Los Angeles Mission, the local Goodwill thrift store, and the UC Irvine Foundation have in common? All are Section 501c3 nonprofit organizations.
More specifically, they are all seen in the eyes of the IRS as Section 501c3 nonprofits. 501c3s are the most common type of nonprofit because not only are they exempt from the federal income tax, but donations made to the nonprofit are tax-deductible for donors. Tax-deductible donations are a great incentive for individuals to give generously to nonprofits.
Ever thought of starting one? Naturally, there are some filing procedures and specific rules a 501c3 nonprofit must meet to establish and maintain this designation.
To qualify for 501c3 nonprofit status, the organization’s purpose must fall under one or more of these categories:
- Religious (local Churches, food banks like Second Harvest of Orange County)
- Charitable (nonprofits like Goodwill Intl., United Way, and UNICEF)
- Scientific (e.g. California Science Center)
- Testing for Public Safety (publications like Consumer Reports)
- Literary organizations (associations like American Library Association)
- Fostering amateur sports competitions (youth sports leagues like AYSO)
- Prevention of cruelty to children or animals (e.g. SPCA-LA, Dogs Without Borders)
As an organization, they need to be a corporation, trust, association, or foundation. Sole proprietorships or partnerships cannot qualify.
Some things to consider:
- Generally, all donations that a nonprofit receives are tax-deductible for the donor. However in some circumstances, if the donor receives something of value in exchange for the donation, the donation may not be considered tax-deductible.
- The 501c3 organization must not substantially attempt to influence legislation or participate in a political campaign for or against any candidate running for public office. Doing so will risk the exemption status being taken away. However, certain voter education activities conducted in a nonpartisan manner may be acceptable.
Nonprofits are a great way to support your community. Tax-exempt and tax-deductible benefits add a sweet incentive for donors to line up and support your nonprofit organization. Do you have a charitable cause that you want to start? MiklosCPA can help you get on the right path! We are well versed in business planning and tax knowledge serving the Greater Los Angeles area. Connect with us on our social media pages for future tax tip articles, or if you are interested in learning more about our services for businesses, send us an inquiry.