As a small business owner or entrepreneur, you are more than likely aware that for-profit and non-profit organizations are held to different governmental tax regulations. In broad terms, a for-profit organization is responsible for paying taxes to federal, state and local governments. A non-profit organization is tax-exempt.
As a result, everyone would love to declare his or her business a non-profit, but there are very strict rules regulating that designation. We’ll examine these rules and the different types of non-profit entities below.
What Does 501(c)(3) Mean?
According to the IRS, in order for an organization to qualify for tax-exempt status under 501(c)(3), no private shareholder or individual should see a benefit from the organization’s earnings. In addition, it cannot actively campaign for political candidates, and must be formed and operated exclusively in a manner that addresses the purposes set forth in section 501(c)(3) (which are located on page 21 of the linked publication).
In most cases, these organizations are designated as charitable organizations. This means they can also receive tax-deductible contributions to fund their efforts.
Further 501(c)(3) Classifications
501(c)(3) classifies organizations into three distinct categories:
- Public Charity: This is the most common form of 501(c)(3). It is also what most people generally associate with the term “non-profit.” Public charities are eligible to receive tax-deductible donations from individuals (up to 50% of the donor’s income) and corporations (up to 10% of the organization’s revenue), and are governed by a board of directors. No more than 50% of the board can be related to each other. Governance of public charities is often scrutinized by the public, and even the implication of a misuse of funds can greatly undermine the charity’s mission. Public charities are expected to receive a substantial portion of their income from the public. Groups that fall into the public charity category include churches, animal welfare agencies, educational organizations and more.
- Private Foundation: A private foundation, which can also be referred to as a non-operating foundation, does not have active programs . Its revenue may come from a small group of donors or even an individual or family. Private foundations are sometimes established to grant money to other non-profit organizations or individuals working on the same exempt purpose of the foundation. A “family” foundation is a common type of private foundation. Donations to 501(c)(3)-recognized private foundations are still tax-deductible for individuals (up to 30% of the donor’s income).
- Private Operating Foundation: This is the least common type of 501(c)(3). Private operating foundations are similar to private foundations, but also have active programs like those found in a public charity. IRS regulations on private operating foundations are similar to those on private foundations. Many consider these foundations a hybrid between public charities and private foundations. Donations are still tax-deductible, just like a public charity.
Because private foundations and private operating foundations receive a larger proportion of their income from non-public sources, they are subject to much less public scrutiny than public charities.
Is There Anything 501(c)(3) Organizations Are Prohibited From Doing?
Yes; these organizations are highly regulated and monitored closely by the IRS for compliance. As stated above, the strictest regulations relate to the use of funds and political advocacy.
While 501(c)(3) organizations can lobby for specific legislation or to effect a vote, they are prohibited from donating directly to a politician’s campaign. This falls under the same rule as not allowing a private individual or shareholder to benefit from the organization’s earnings (e.g., donations).
Qualifying for—and maintaining non-profit status—is not easy, but it is possible. If you think your business might be eligible to become a 501(c)(3) organization, review the documents at IRS.gov and take the necessary steps.
This article originally appeared on the QuickBooks Resource Center and was syndicated by MediaFeed.org.
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17 simple pleasures to appreciate this Thanksgiving
Inevitably, there are sad and angry moments, but if you look closely enough, you can almost always find some small moments of happiness that have nothing to do with having stacks of cash – in fact, many of them are free. Here are some of my favorite snippets of life that fill my heart with joy.
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The fresh smell of earth after rain is the smell of nature. Rain washes away the dirt, leaving the grass greener and cleaner, and wild flowers dewier than ever before. The technical term is “Petrichor”, which you can read about on BBC News here. I am not too much into the scientific explanations. For me, it is the smell of spring, of hope, and of happiness. I love taking a walk and embrace nature after a rain, even if my shoes may get wet.
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I am an early morning bird by nature, so I am always the one waking up earlier. I love observing my significant other sound asleep, with his eyes closed and body relaxed. I can only hear his steady breath, one, two, three. The world is full of tranquility.
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It has to be a lazy Sunday for me to do this, which is why it is extra precious. To be honest, I have trouble staying in bed if I have many to-dos on my mind, so this really only happens when I give myself permission to fully relax.
I love seeing the sunbeams escaping through the space between my curtain panels and leaving some bright spots on my furniture. I can feel the warmth that radiates from the sun, and the warmth hiding under my blanket.
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I am not very good at telling jokes. Too often, a joke that sounds so great in my head turns out to be a leaf that falls into a river when I say it out loud.
But very occasionally, I can still manage to say something funny, even though sometimes it is not even intentional. Whatever the case, I love seeing somebody laugh because of something I said. Laughter could be a cure of diseases, and it makes the world so much brighter and happier.
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I love a good conversation. Whether it is with a friend, a family member, or even someone you just randomly bump into at an event, you know it is a good conversation when you forget about the time. Words form sentences, and sentences flow out of your mouth so naturally that, before you knew it, the sun is already rising.
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It is definitely among the best feelings when a lovely piece of music I love wafts through the air when I least expect it to. It is a wonderful surprise and a pleasant gift to my ears.
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For those of us who still has a three-year-old living inside our hearts, you know what I am talking about. The little (or big) body of the stuffed animal just seems to be able to heal anything while you temporarily slip back into childhood, so effortlessly.
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This one may be a little bit of an ego thing, but I have to admit that I feel valued when somebody nods to my suggestions and actually put them into use. It could be as small as “this blue shirt fits you better”, or it could be actual corporate strategies implemented in market for the world to see. Regardless of the scale, these small successes in life bring me satisfaction and happiness.
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This one may be similar to the one above in essence, because in both instances, I feel useful and valued. I also especially like this one because I am not someone who is naturally good with directions. As a matter of fact, I get lost pretty easily. That’s why I especially cherish the moments when I am actually able to be of use to someone.
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I love the smell of freshly baked bread. The crusty outside, the aroma, the soft inside, and the springiness once you take a bite, all are so enticing and lovely.
My favorite bread is a potato and scallion bread made by my local bakery. This recipe is the closest I can find, though it doesn’t have scallions.
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I am human and I love receiving compliments, okay! Just let me! Of course, empty compliments don’t mean much to me. What I cherish the most is the recognition I receive for something I have done that I personally feel is a little special.
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While it is pleasant to receive compliments, it is equally pleasant, if not more, to give genuine compliments. It brings you closer with the other person, makes the other person feel good, which in turn makes you feel good as well. Note the importance of “genuine.” Fake compliments cannot pull anybody’s heartstring.
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Of course this feels amazing! It doesn’t have to be a lottery, though if it ever comes my way I will hold out both of my hands to embrace it!
To increase you chance of winning a prize, I suggest that you enter online contests. Believe it or not, those prizes are real, and the odds may not be as bad as you think they are. If you never win? Well, you won’t lose much time any way, since entering these contests don’t take too much time. But if you win, well, congratulations! You now have some unique experiences to cherish!
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In addition to nourishing our souls, we also need to take care of our bodies. You can certainly derive a sense of happiness and satisfaction from a really nice workout session. Hey, look at what I just accomplished!
For me personally, I find that the first seven or eight minutes of any workout session are the most difficult. However, once I get over that initial hump and my adrenalin starts pumping, I am in the zone!
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It can be something small, or something big. The gesture counts.
Finding deals on items that I will buy anyway
This is somewhat related to personal finance, because we are talking about deals! Who doesn’t like a good deal anyway?
To find out about more money saving tips and tricks, you may want to check out my articles here!
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I love how my feet feel when I step onto a soft rug. It’s one of those little pleasures in life that I absolutely treasure.
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Hope gets you through tough periods of your life and enables you to see the rainbow at the end of the tunnel. It is invisible but heart-warming like a bowl of warm soup in the winter, or refreshing like that glass of lemonade under the scorching sun.
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I am a big planner. As a result, anticipating for an event, whether it is a vacation or a nice night-out, is just as exhilarating as the actual event itself. Revel in your anticipation, and share your excitement for the future with people around you. You will be able to bring happiness into your life well before the actual event.
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Life has its challenges, but it is also sprinkled with happiness. Next time when life gives you a piece of sweet little candy, seize it, and savor it.
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This article originally appeared on BellaWanana.com and was syndicated by MediaFeed.org.
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