Q: Does our Nonprofit Organization have to pay taxes?
When people think about forming a "nonprofit" - hoping they'll obtain grant funding - they don't realize that in order to "qualify" for grant funding, they need to be formally recognized as a federally tax-exempt, nonprofit corporation. It's the moniker “nonprofit” that can be confusing; in fact it's not quite accurate: "tax-exempt” is the proper terminology.
In reality, tax-exempt organizations are actually allowed to make a profit! What’s important to remember is the IRS looks at where that profit (the money your organization earns) comes from and where it’s used, when managing a “nonprofit” organization. Nonprofits do not pay federal income tax on funds that are obtained from legitimate sources and which are to be used for their stated programs: for example grant funding.
Additionally - you'll need to check to be sure, but most states will exempt an organization from income taxes, sales taxes, property taxes, and more, but in most states you will need to request such exemptions.
Keep in mind, however, that just like individuals and any for profit business, “tax-exempt” does not mean you won’t have to file taxes. Each year you should file a 990 form with the IRS, so keep good financial records. If you miss 3 years in a row – they will revoke your tax-exempt status!
Unrelated Business Income (UBI) is an important factor in determining if you have to pay taxes, when you file your organization's income tax returns every year. See UBI Article to learn more about this subject.
For any income-tax related issues, you should always consult with a tax professional, but if you have any questions on the information above, feel free to Comment below, and we'll get right back with you!
Have a question or need help setting up your tax-exempt, 501(c)(3), nonprofit organization? Call us at 1.865.408.8833, Comment below, or email us directly, and we'll get back with you ASAP! Just click This email address is being protected from spambots. You need JavaScript enabled to view it. to send an email!