Non-Profit vs. Tax-Exempt Organizations

In the realm of tax and legal jargon, there’s a phrase you probably heard as many times as we have here in the office, “Non-profits are tax-exempt organizations, but not all tax-exempt organizations are nonprofits.”

“Tuh-mey-toh, Tuh-mah-toh,” right? Both are so similar; yet, there are significant differences that justify their separate designation.

Non-Profits
Your organization being labeled as a non-profit or for-profit is a perception of state law. According to state law, a for-profit organization generates money specifically for its owners and investors. By having your organization recognized as a non-profit, you’re basically stating your organization has some other purpose other than creating revenue for owners and investors. But that purpose alone doesn’t necessarily qualify for an exemption from taxes.

Tax-Exempt Organizations
As mentioned before, labeling your organization as a non-profit doesn’t mean it’s automatically recognized as “tax-exempt.” Above all, you must apply to the IRS for a determination of a tax-exempt status. There are many types of organizations that are qualified for a number of tax exemptions; one would be like an exemption from tax on income that is received during the course of activities conducted in relation to your organization’s tax-exempt purpose.

A 501(c)(3) organization is your most common type.of tax-exempt organization. In order to qualify, you have to file a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3), with the IRS. Your state may also require you to submit an application with them to qualify for exemption from state income tax and other state taxes.

For more information about non-profits and tax-exempt organizations, check out the following blog: Becoming a Non-profit or Tax-Exempt Organization

One thing you should remember is that both non-profits and tax-exempt organizations can make money. Just because you’re labeled as either “non-profit” or “tax-exempt” doesn’t mean that your organization can’t have any money left over at the end of the year. Any funds not needed to fulfill a current expense can be used to further your organization’s mission or be saved for future activities.

If your organization is tax-exempt, or a non-profit that’s recognized as “tax-exempt,” you can safely and securely e-file your tax-exempt return with Express990. We offer all three 990 forms for tax-exempt organizations. You can also download our FREE Express990 App for iOS and Android tablets, or use our mobile site to e-file a Form 990-N (e-Postcard).

For any questions or assistance with our e-filing services, feel free to contact our live, expert help at our headquarters in Rock Hill, South Carolina.

Phone: (704) 839-2321 (Monday – Friday, 9am – 6pm, Eastern Standard Time)
Email: [email protected]
Live Chat: www.expresstaxexempt.com