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Small Business Formation

 4 Benefits of Tax-Exempt Status for Nonprofits

We'll assist you in preparing all the necessary documentation to commence your 501c3 journey, guiding you through the process until you achieve full nonprofit status as a 501c3 organization.

Our service fees vary based on the types of services your organization needs. 
- EIN 
Bylaws  - Conflict of Interest 
- Article of Incorporation 
- Annual tax filing - 501(c)(3) application

1. Fewer state and federal taxes
The most important benefit of tax-exempt status comes at tax time — your organization pays less in both federal and state taxes. In many cases, you won’t need to pay the federal corporate income tax or unemployment tax. Keep in mind that the income tax exemption only applies to income that’s directly related to the nonprofit’s purpose; unrelated income is subject to tax.
Every state sets its own tax rules for 501(c)(3) organizations. Many states offer exemptions for sales tax, property tax, and corporate income tax. You may also be able to avoid use, excise, and franchise taxes.

2. Sales tax exemptions (in some cases)
Many states offer nonprofits an exemption from sales tax, which means that your organization can save thousands on the goods and services you purchase (from computers and office supplies to catering services). 
The laws vary, so it’s important to understand the rules before you start purchasing. For example, California offers exemptions for a few specific purchases, including certain types of food. In Connecticut, qualifying nonprofits enjoy a broad sales tax exemption.
The way you claim the sales tax exemption varies, too. Some states, including Michigan and Florida, require you to present a certificate of exemption. In states such as Connecticut, you can simply present a copy of your IRS determination letter.

3. Ability to accept tax-deductible donations
Most nonprofits rely on donations. If your organization has a tax-exempt status, donations are tax-deductible. That means your donors can deduct their contributions from their income, which means they’ll pay less in taxes. This perk can motivate people to donate, particularly if they’re actively looking to maximize write-offs. Depending on the donor’s status, they might be able to deduct charitable contributions up to 50% of their adjusted gross income.
Are you planning to solicit funds from businesses? Keep in mind that corporations can also make tax-deductible charitable contributions. Obtaining your 501(c)(3) status opens up the organization to high-dollar donations.

4. Increased grant availability
If you run a tax-exempt 501(c)(3) organization, you’re qualified for a wide range of grants. This can make it easier to find funding, especially when donations are down. Many foundations, government agencies, and funding sources give money to nonprofits because of the tax benefits. Others are required to donate a specific percentage of their assets to qualified organizations each year.

Our service fees vary based on the types of services your organization needs. 
- EIN 
Bylaws  - Conflict of Interest 
- Article of Incorporation 
- Annual tax filing - 501(c)(3) application

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