How to do Tax Planning for a Non-Profit Organization?

How to do Tax Planning for a Non-Profit Organization?

What is a Nonprofit 501(c)(3) Organization?

A nonprofit 501(c)(3) organization is a type of charitable organization that the Internal Revenue Service recognizes as tax exempt. The IRS uses specific revenue and expense classifications to determine if your organization will retain its tax-exempt status.

On registering with the IRS, you are required to file annual nonprofit returns. This file is referred to as Form 990 and is a sign of tax compliance.

Here are so reasons why one would consider forming a nonprofit 501(c)(3) organization:

  • Protection of assets
  • For charity purposes
  • Increase the scope of sponsorship¬†


Basic Steps for a Nonprofit Tax Preparation:

1. Plan

Your organization must pursue an activity in one of the following categories:

  • religious
  • charitable
  • scientific
  • literary or educational
  • testing for public safety
  • fostering national or international amateur sports competition
  • preventing cruelty to children or animals


2. Form a Corporation

  • Name the corporation
  • Prepare and file articles of nonprofit tax preparation plans
  • Appoint one to three directors
  • Get state tax identification number
  • File nonprofit returns with IRS


3. File Paperwork with the IRS

First, you will need to apply for an employer identification number (EIN). Next, complete and submit Form 1023, Application for Recognition of Exemption under Section nonprofit 501(c) (3) of the Internal Revenue Code.

4. Comply With State and Local Requirements

Once you’ve met your state’s requirements for operating as a nonprofit, you’ll need to get any permits or licenses required to operate your business and make sure to comply with building codes and other local regulations.

In addition, before you start operating, get familiar with corporate requirements, such as holding meetings, keeping minutes and filing annual non-profit tax returns.

5. Maintain Your Status

Maintaining your nonprofit status is an ongoing process, and the consequences are severe if you do not follow the rules.

Here are seven things you need to do on an ongoing basis:

  • Make sure your organization operates in the way you said it would in your application.
  • Comply with annual IRS requirements in nonprofit tax preparation.
  • Have diverse funding sources since 501(c)(3) non-profit organizations are supposed to be public;
  • Run your organization like a business with its own bank account and credit card and retain records.
  • Do not allow your organization to participate in any political campaigns.
  • Do not use your organization to further non-exempt purposes or to commit illegal acts.
  • Avoid earning unrelated business income through your organization.


Establishing a nonprofit 501(c)(3) organization can be an exhausting process. Before you tackle the challenge, weigh the pros and cons of meeting all the legal and tax requirements of forming and operating an official nonprofit organization.

Leave a Reply

Your email address will not be published. Required fields are marked *