{"id":4800,"date":"2016-04-04T10:47:45","date_gmt":"2016-04-04T15:47:45","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/becoming-a-tax-exempt-organization.html"},"modified":"2025-10-26T22:05:00","modified_gmt":"2025-10-27T03:05:00","slug":"becoming-a-tax-exempt-organization","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/becoming-a-tax-exempt-organization.html","title":{"rendered":"Becoming a Tax-Exempt Organization"},"content":{"rendered":"\n
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Becoming a Tax-Exempt Organization<\/h1>\n\n
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\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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A nonprofit<\/span> organization<\/span> can become a tax-exempt organization<\/span> by filing an application for <\/span>tax-exempt status<\/span> for IRS<\/span> approval<\/span>. These organizations must be formed for specific purposes such as charitable, religious, or educational activities.<\/p>\n\n <\/div>\n\n\n\n

Many\u00a0nonprofit<\/span> organizations<\/span>\u00a0wish to enjoy tax exemptions. These exemptions are offered by the\u00a0Internal Revenue Service<\/span><\/a>\u00a0(IRS<\/span>) and state governments. State laws govern the formation of nonprofit<\/span> corporations<\/span>. Each state sets specific rules and limits for qualifying nonprofit<\/span> groups.<\/p>\n

This article is for you if you\u2019re starting a nonprofit<\/span><\/a> and want to learn about becoming a tax-exempt organization<\/span>. Tax-exempt organizations<\/span> do not pay federal <\/span>income tax<\/span> on the money they make. This can be a big help to groups trying to make a difference in their communities. Let\u2019s discuss what tax-exempt means, the benefits, and how to apply for it.<\/p>\n

Need help with nonprofit formation? Our trusted partner LegalZoom makes it easy.<\/a><\/b><\/em><\/p>\n

Tax-Exempt <\/span>Nonprofit<\/span> Organizations<\/span>: At a Glance<\/h2>\n

A tax-exempt organization<\/span> is a special type of entity. These groups do not have to pay federal <\/span>income tax<\/span> on their earnings. These organizations are set up for different purposes and focus on a variety of missions. To be recognized as tax-exempt by the IRS<\/span>, an organization must meet certain criteria.<\/p>\n

Tax-exempt status<\/span> is beneficial for several reasons. However, obtaining and maintaining this status requires adhering to strict rules and regulations. For example, these organizations must engage in transparency with financial activities. They also have certain limitations on political involvement.<\/p>\n

The most common way to receive tax-exempt status<\/span> is to apply under\u00a0Section 501(c)(3<\/span>) of the Internal Revenue Code<\/span><\/a>. If they qualify under this section, they enjoy exemptions from some federal, state, and local taxes. Donors can also write off their contributions on their individual tax returns<\/span>.<\/p>\n

Benefits of Tax-Exempt Status<\/span><\/h2>\n

The benefits of tax-exempt status<\/span> for an organization are significant. To start,\u00a0it exempts the organization from paying federal <\/span>income taxes<\/span>. This can result in significant savings. More funds can be used to be directed toward the organization\u2019s mission. Tax-exempt organizations<\/span> may also be eligible for certain tax deductions<\/span> that are not available to for-profit entities.<\/p>\n

In addition, being recognized as a tax-exempt organization<\/span> can enhance credibility and attract more donors. This is because contributions to charitable organizations are often tax-deductible<\/span> for the taxpayer<\/span>. This status also often results in lower postal rates and exemption from some state and local taxes, which\u00a0further reduces the financial burden on the organization and allows it to maximize its impact.<\/p>\n

Applying for Tax-Exempt Status<\/span> With the IRS<\/span>: Eight Categories<\/h2>\n

To become tax-exempt, your organization must file\u00a0<\/span>Form<\/span> 1023<\/a>\u00a0or\u00a01023-EZ<\/a>\u00a0with the IRS<\/span>. The IRS<\/span> looks at several categories to decide if you qualify. The IRS<\/span> allows organizations to file for tax-exempt status<\/span> under section 501(c)(3<\/span>) if they fit within one of eight identified categories:<\/p>\n