If you’re thinking of starting a nonprofit business in Florida, you need to know about both state and federal procedures.
Forming a nonprofit is a time-consuming and often complicated procedure, especially when it comes to securing a tax exemption. That’s why it’s advisable to meet with an attorney with expertise in a nonprofit organization.
What Exactly Is A 501 (c)(3)?
In Florida, several nonprofits are recognized. These include educational, veteran, religious, charitable, literary, amateur sports competitions, testing for public safety, prevention of cruelty to animals or children, and scientific organizations. Yet, none of them automatically qualify for tax exemption at either federal or state level.
A 501(c)(3) corporation is exempt from federal tax. To achieve this status, you need to file Form 1023 with the IRS. Form 1023 is an Application for Recognition of Exemption.
501(c)(3) is an IRS tax code that indicates your organization is tax-exempt. In other words, any donations made to your organization are tax-deductible on your annual tax return.
What sets a 501(c)(3) apart from other businesses is that it is a public charity that serves the common good. So, if your company serves a recreational or social purpose, or relies on private membership donations, it falls under a different IRS category.
How to Qualify for Tax Exemption in Florida
Once you have formed your nonprofit organization, you need to request tax exemption from the Internal Revenue Service. This is usually called a 501(c) status. The greater majority of tax-exempt organizations in Florida are recognized as 501(c)(3) companies for charitable purposes.
To receive your 501(c)(3) tax-exempt status, you need to file Form 1023 with the IRS. This form is an in-depth look at your company’s structure and programs. Most Form 1023 filings can range anywhere from 50 to 100 pages of information, given the number of additional attachments, schedules, and exhibits that might be required.
In July 2014, the IRS launched Form 1023-EZ. This form is an abbreviated version of the 501(c)(3) application for exemption and may be filled out online. However, it is only available to smaller, qualified organizations. What’s more, it’s a somewhat controversial form. Many states oppose its use, fearing it could negatively impact grant funding for smaller charities.
Applying for Tax Exemption
Before you can apply for your 501(c)(3) status, there are four requirements you must meet:
- Elect 3 or more directors (they cannot be related)
- File your Articles of Incorporation with any necessary provisions
- Adopt the conflict of interest policy and bylaws
- Acquire an EIN number
Once your nonprofit has met these four conditions, you can file Form 1023 online and apply for your 501(c)(3) tax exemption.
Once your application has been approved, the IRS sends you a determination letter that states your organization is exempt from federal taxes.
What About State Taxes
So, a 501(c)(3) renders your nonprofit exempt from federal taxes, but what about state taxes?
If your nonprofit organization is approved for 501(c)(3) status, you will automatically be exempt from state corporate income tax. That is unless you have unrelated business income.
That is all there is to it. Once all that is done, you will have turned your passion into a legitimate nonprofit in Florida, exempt under 501(c)(3) to benefit the community.
Don’t Forget the Upkeep
The solid foundation you build then requires ongoing upkeep. It is your ongoing responsibility to invest in maintaining compliance with the relevant government agencies. It’s also your commitment to ensuring your vision continues into the future.
Once you have registered your nonprofit business, you will have to stay current with state and IRS requirements to ensure your company remains compliant with tax exemption requirements.
An experienced attorney can help ensure that you apply correctly for your 501(c)(3) tax exemption and maintain your status long into the future.
Book a consultation with Principal Law Firm today to discuss your nonprofit organization’s requirements.
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