Welcome back, everybody!
We’re going to take a little break from all the Tax Day excitement on this lovely Friday to start another rousing game of Did You Know – Tax-Exempt Edition!
Did You Know: There’s a Difference Between Nonprofits and Tax-Exempt Organizations
Believe it or not, not every charity is exempt from taxes. Some are straight up, for-profit businesses while others are divided between nonprofit groups and tax-exempt organizations.
Nonprofits are those organizations that haven’t applied for or haven’t yet received federal tax-exempt status from the IRS. Tax-exempt organizations have applied for 501(c) exemption status from paying certain taxes to the IRS due to the nature of the organization. The vast majority are tax-exempt under sections 501(c)(3) and 501(c)(6).
Did You Know: Tax-Exempt Organizations Have to File Tax Forms
A nonprofit cannot become a tax-exempt organization until it applies for 501(c) status with the IRS. To apply, officers of the nonprofit must complete and submit Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code or Form 1024, Application for Recognition of Exemption Under Section 501(a).
But once they’re tax-exempt, the tax forms don’t stop. For one, tax-exempt orgs must file some version of the 990 Form each year to report their financial activity for the year to make sure they still apply for tax-exempt status.
Additionally, tax-exempt associations aren’t exempt from all taxes with their status. “Tax-exempt” means that they’re exempt from paying federal corporate income tax on income generated from activities that are substantially related to their overall purpose. They must still pay the standard federal corporate tax rates on unrelated business income (UBI), or any income that is unrelated to their tax-exempt purpose.
Did You Know: The Tax-Exempt Tax Day is Coming Up Soon
Now, tax-exempt organizations don’t just get to file their 990 Form all willy-nilly and whenever they want throughout the year. Tax-exempt organizations have a Tax Day too, and for most it’s May 15, which you may have noticed is just a little over a month away.
We say “for most” because this is the deadline for organizations that operate on a calendar year tax year a.k.a. a tax year that runs from January 1 to December 31. But because nonprofits can apply for tax-exempt status at any time of the year, some organizations choose to operate in a tax year that follows more closely when their tax-exempt status was granted. This means a lot of tax years end up running from July 1 to June 30 or September 1 to August 31, etc., etc. So the official deadline for tax-exempt organizations to file their 990 Form is the 15th day of the 5th month after their tax year ends.
So since a calendar year tax year is the most common operating procedure, May 15th is the unofficial-official tax day for tax-exempt organizations!
Did You Know: We Know Where You Can E-file Tax-Exempt Forms
Because of course we do! Our sister product, ExpressTaxExempt is quickly growing to be a one-stop-shop for nonprofit and tax-exempt organizations. Users can e-file Forms 990, 990-EZ, 990-PF, and 990-N with ExpressTaxExempt, and they also provide a generous amount of general information every nonprofit and tax-exempt organization should know. You can even e-file the 990 extension form, Form 8868, over there!
Just visit www.ExpressTaxExempt.com to learn more or give us a call and we’ll put you in touch with a friendly and knowledgeable ETE team member!