Many individuals who file for a 501c3 tax exempt application don’t know that a business can serve a lot of purposes. It is not essential for a person to run the business solely for profits. It can be done for several individualistic reasons like establishing a sense of personal achievement, not being answerable to anyone, or having flexible work schedules. On a larger scale, businesses may be built around social causes with social benefits as the goal instead of profit maximization. Such organizations are generally labeled as charitable organizations.
Running a charitable organization has its perks. A charitable organization is emotionally closer to an average being as compared with conglomerates that provide finished goods to ease life. Not only does this translate into a better perception among people, it also means that any marketing efforts made by the organization are a hundred times more effective than all other advertising campaigns.
This cause is acknowledged and appreciated by the government authorities as well. If an organization functions for non-profit concerns, it is eligible for a tax exemption as instigated by the federal tax laws under section 501c3 tax exempt application. However, it is an essential requirement for this tax exemption redemption that none of the earnings made by such a business should be given to any individual or shareholder in the organization – each and every cent of this earning should be spent on charitable causes.
The 501c3 tax exempt application clause has three essential aspects – the organization of the firm, its operations and the purposes behind its existence.
The organization of the firm should be legalized with the acquisition of official documentation which expressly states its purpose around a tax-exempt incentive and that it is a significant part of its overall operations.
Its operations should be transparent and in accordance with tax-exempt purposes without conflicts between its major charitable operations and minor profitable operations. It is extremely imperative for the earnings from a charitable organization to not flow towards any individual indulged in the project as a shareholder or as the founder/beneficiary.
Lastly, the tax-exempt purpose should be a social benefit or public safety regime which may include education, establishing a religious entity, scientific or literary propagation, preventing abuse or promoting public safety by testing and screening. This should serve the purpose of overall betterment of humanity.
The 501c3 tax exemption application, if granted, obliges the organization for bookkeeping. The exempted organization is required to maintain records for all organizational activities, irrespective of it being of a financial nature or not. All inflows and outflows need to be documented appropriately and transparently for legal authorities as well as the general public to seek, evaluate and inspect. Moreover, tax exemption under 501c3 tax exempt application also enforces the organization to file certain documents yearly instead of its annual returns. These documents substantiate transparency and continued existence of the firm as a charitable organization.
If a charitable organization indulges in unrelated trade activities and reaps considerable amounts of profits, it is obligatory for it to report it with the authorities as this earning is eligible for tax-deduction. Failure to do so can make the organization entitled for penalization.
If you need more information about our, Orlando accounting and tax services, please contact us at 407-502-2400. Freedomtax Accounting’s staff has been providing honest accounting services and tax services for 15 years. Our Orlando accounting and tax firm has its main offices in Kissimmee, FL. Our services are provided nationwide, but mainly in the Central Florida market to areas like Orlando, South Orlando, Kissimmee, St. Cloud, Poinciana, and Hunters Creek, FL. Our tax accountants and IRS enrolled agents (irs ea) specialize in corporate accounting and bookkeeping, tax services, tax preparation, back taxes help, tax debt relief, tax resolution, tax planning, itin numbers, incorporations, and non profit 501c3 tax exempt status applications.
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