Are All Charitable Organizations Tax-Exempt?

We have been asked from time to time by charitable organizations whether or not they need to file for tax-exempt status. It may seem like it is a requirement, but depending on the mission and goals of the organization, it’s not necessarily so.

It may be easy to confuse an IRS registered, tax-exempt 501(c)(3) nonprofit with a non-exempt charitable organization. They may sound similar, but many small charitable organizations that serve the public are not registered with the IRS as a nonprofit. The primary disadvantage to not becoming a registered nonprofit is that donors cannot take a tax deduction on their donations, and you cannot receive grants from foundations or corporations.

To overcome this disadvantage, a charitable organization must file to become a 501(c)(3) organization. This is no simple task. It involves a lot of paperwork and some expense. It’s something that must be considered carefully before you begin the difficult process of a becoming a tax-exempt nonprofit organization as it may not be the best path for your purpose. If your purpose is simple and/or time limited, you may be able to accomplish your mission without tax-exempt status. It’s best to discuss this with a nonprofit accounting professional who can help guide your organization to make the best decision for your mission.