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The tax-exempt status of a non-profit is alluring. In addition, non-profits are eligible for a variety of government grants and funding. However, converting an existing venture to not for profit status is not as easy as just saying goodbye to your tax bills.
It is possible to switch providing that your company falls under a few key categories. I know only a little about this area, because my father is a financial adviser and I have a close friend who recently went through something similar. Because of this, I thought I'd would throw in my two cents, however this is not my area of expertise.
The first thing to look at is whether your business could even qualify as a non-profit organization. In order to become a 501(c)(3), a company must be dedicated to a charitable purpose or serving the public good. For example, educational ventures, religious organizations and public assistance groups (that feed, clothe, house or otherwise serve those in need) all qualify. The group must benefit the public, as opposed to a private group. A 501(c)(3) must also be incorporated (I'll explain this further below). However, there are also activities your organization must refrain from engaging in to qualify for tax-exempt status. This specifically includes lobbying government officials to influence legislation or providing funds to political candidates running for public office. Moreover, operating as a nonprofit doesn’t require that your organization not generate revenue in excess of expenses; it only requires that all funds the organization raises not benefit individuals or other business entities that aren’t tax-exempt.
There are additional types of non-profits; groups such as business leagues, social clubs, and labor and agricultural organizations may be able to form tax exempt non-profits. The IRS offers details on groups that are eligible at: www.irs.gov.
The IRS initially requires that the organization you are seeking tax-exempt status for exist as a corporation, limited liability company (LLC), trust or unincorporated association. However, as a sole proprietor, you can create one of these eligible entities by filing the appropriate articles of organization and paying a filing fee with the secretary of state’s office, or its equivalent, in the state you wish to form the entity in. When you do, however, it’s vital that your documents expressly restrict the entity from engaging in activities other than those the IRS specifically allows for. In other words, the IRS will not accept your application unless there are sufficient clauses in the document that restrict the organization from engaging in any activity that doesn’t satisfy the requirements for tax exemption.
Submitting Form 1023
Once you change the legal structure of your sole proprietor activities and ascertain that it satisfies IRC 501(c)(3), you must make a formal application for tax-exempt status to the IRS on Form 1023.
I hope this information was somewhat helpful.
It is possible to switch providing that your company falls under a few key categories. I know only a little about this area, because my father is a financial adviser and I have a close friend who recently went through something similar. Because of this, I thought I'd would throw in my two cents, however this is not my area of expertise.
The first thing to look at is whether your business could even qualify as a non-profit organization. In order to become a 501(c)(3), a company must be dedicated to a charitable purpose or serving the public good. For example, educational ventures, religious organizations and public assistance groups (that feed, clothe, house or otherwise serve those in need) all qualify. The group must benefit the public, as opposed to a private group. A 501(c)(3) must also be incorporated (I'll explain this further below). However, there are also activities your organization must refrain from engaging in to qualify for tax-exempt status. This specifically includes lobbying government officials to influence legislation or providing funds to political candidates running for public office. Moreover, operating as a nonprofit doesn’t require that your organization not generate revenue in excess of expenses; it only requires that all funds the organization raises not benefit individuals or other business entities that aren’t tax-exempt.
There are additional types of non-profits; groups such as business leagues, social clubs, and labor and agricultural organizations may be able to form tax exempt non-profits. The IRS offers details on groups that are eligible at: www.irs.gov.
The IRS initially requires that the organization you are seeking tax-exempt status for exist as a corporation, limited liability company (LLC), trust or unincorporated association. However, as a sole proprietor, you can create one of these eligible entities by filing the appropriate articles of organization and paying a filing fee with the secretary of state’s office, or its equivalent, in the state you wish to form the entity in. When you do, however, it’s vital that your documents expressly restrict the entity from engaging in activities other than those the IRS specifically allows for. In other words, the IRS will not accept your application unless there are sufficient clauses in the document that restrict the organization from engaging in any activity that doesn’t satisfy the requirements for tax exemption.
Submitting Form 1023
Once you change the legal structure of your sole proprietor activities and ascertain that it satisfies IRC 501(c)(3), you must make a formal application for tax-exempt status to the IRS on Form 1023.
I hope this information was somewhat helpful.
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Tiffany Henderson advised 6 months ago
The tax-exempt status of a non-profit is alluring. In additi...
The tax-exempt status of a non-profit is alluring. In additi...