What You Need to Know to Get Federal Tax-Exempt Status

If your Raleigh business is a non profit organization then you must properly request tax exempt status to avoid penalization for non payment. Although there are numerous classifications, most businesses that are classified as a non profit will likely be referred to as a 501(c)(3) status. This means the business will not be required to pay taxes on net profits at the Federal level.

In order to qualify, the organization must operate for the exclusive purpose of exemption, and no earnings must be made to benefit private holdings of the creator and their family, or any other shareholders, etc.

A business will need to incorporate prior to seeking tax-exemption. Afterward, the business will need to complete IRS Form 1023 to register as tax exempt.

Organizations Allowed to Obtain Federal Tax-Exempt Status

  • Education
  • CharitableAccounting Raleigh
  • Religious
  • Social Welfare
  • Agricultural and Horticultural
  • Social Clubs
  • Fraternal Societies
  • Veterans
  • Political
  • Scientific
  • etc.

Find Out North Carolina’s Registration Requirements

File your business as a non profit under North Carolina Law Chapter 55A prior to filing for Federal exemption. North Carolina has several exemption requirements depending on your organization.

Decide the Type of Entity for Your Organization

Your business classification will be determined by the type of transactions that take place. For example, a non profit Trust must contain certain language to qualify as exempt otherwise, it will be taxed accordingly.

3 Types of Classifications

  • Corporation – Most common tax exempt entity. Income will be distributed to charity, not between company directors or officers
  • Trust – Income can be distributed to other non profit or charitable institutions
  • Association – Must meet minimum requirement for membership, with the goal of non profit

Compile All Organizational Documents

During filing, you will need to gather all relevant documentation for your organization.

Here is a list of required documents:

  • Articles of Incorporation
  • Corporation
  • Limited Liability Corporation (LLC)
  • Articles of Association or Constitution for Association
  • Trust Agreement or Declaration of Trust for a Trust

*must have an organizing document to qualify for tax exemption

Get Your New Employer ID Number

As a non-profit employer, you are still required to have a Federal EIN or Employer Identification Number. Be sure to fully form your organization prior to filing for the EIN. Failing to do so may result in a loss of tax-exempt status.

Check out IRS.gov

As a Raleigh small business accountant, C.E. Thorn, CPA, PLLC primary focus is to help local for profit businesses with tax preparation. However, we do want to provide resources for all things accounting. If you have additional questions regarding Federal Tax Exemption, please visit IRS.gov for extensive details.