Charities operate to service individuals or groups in need. While many charities are nonprofit organizations, such organizations still have operational costs, such as renting commercial space and paying employees. But those interested in starting their own nonprofit organizations should realize there are certain financial incentives to such endeavors.
Tax breaks and other incentives vary from state to state and country to country, but nonprofit organizations are often eligible for such relief. Attorneys who specialize in tax law and nonprofit operations can help prospective nonprofit startup owners understand the ins and outs of such incentives. The Internal Revenue Service and Canadian Revenue Agency Web sites also make helpful resources for prospective nonprofit owners.
Though nonprofits fall into various categories that determine their eligibility for certain incentives, the following are some of the perks afforded to nonprofit organizations.
- Itemized business deductions: A nonprofit is a business and is entitled to certain itemized business deductions under the tax code. Deductions for advertising and promotional costs may be eligible, so nonprofits may be able to deduct costs associated with brochures, Web site design and media advertisements.
- No taxes on revenues: A nonprofit that has a tax-exempt status will not have to pay taxes on net revenues. Furthermore, many nonprofits do not have to pay sales tax or are eligible for rebates on any sales taxes they have paid on items for the business.
- No federal income tax: In the United States, Section 501 of the IRS tax code exempts qualified nonprofit organizations from federal taxes. To earn such exemptions, organizations must meet certain requirements, which include operating entirely for charitable, religious or public safety purposes and turning over any income less expenses to legitimate charities and individuals. A nonprofit may not have to pay property tax for a piece of land used for charitable or nonprofit-related business as well.
- Legal and professional fees: The fees charged by attorneys and accountants to further the operations of the nonprofit business may be tax deductible. Additional services, such as hiring grant writers, also may be subject to the same tax benefits.
- Discounts with private companies: Some companies recognize that nonprofits do important work for society despite modest means. As a result, various companies offer discounts to nonprofit organizations to alleviate the costs of operating their businesses. When contracting with vendors and other businesses, nonprofits can inquire about discounts for charities. Furthermore, there are certain Web sites that group together businesses that offer discounts. The site www.discounts-for-nonprofits.com is one such enterprise.
- Reduced postage rates: Many nonprofits are eligible for reduced postage rates. An organization must submit an application and meet certain eligibility requirements, and there are strict guidelines that govern the type of mail that can be sent using the nonprofit rate.
Discounts and other tax incentives for nonprofits depend on an organization's classification.