How to Become a Tax-Exempt Business
Items you will need
- Incorporation documents for nonprofit organization
- IRS Form 1023 IRS Form SS-4
Organize your nonprofit business in accordance with the state law where the organization will reside, ensuring that your incorporation documents form a corporation, community chest, fund or foundation. The organization must have a charitable purpose, qualify as a religious group or be considered a scientific organization, serve a literary purpose or qualify as an educational organization. The organization cannot engage in political activity or benefit private shareholders or individuals.
File Internal Revenue Service Form 1023, Application for Recognition of Exemption, if required, within 15 weeks of incorporating your nonprofit business, together with the appropriate fee. Form 1023 contains 26 pages of questions regarding basic contact information, organizing documents, a description of activities, compensation arrangements for directors and officers, and
financial information regarding revenue and expenses. As of publication, the filing fee is $400 for gross receipts of less than $10,000 annually over a four-year period or $850 for gross receipts exceeding $10,000 annually over a four-year period.
Apply online, by telephone, fax or mail, for an Employer Identification Number from the Internal Revenue Service. An EIN is the taxpayer identification number for entities. Form SS-4, Application for Employer Identification Number, requests contact information for the nonprofit organization, the type of entity, the reason for applying for an EIN and the principle activity of business.
Apply for tax-exempt status in the state where your organization resides after you have been granted the federal tax exemption. Most states will give tax-exempt status to entities that have been granted such status by the IRS. The status will apply retroactively to the same date the IRS granted the federal tax exemption.Source: yourbusiness.azcentral.com