Tax-Exempt Organizations

Various business entities may exist under the tax-exempt provisions of the Internal Revenue Code §501(c) (3). An individual may wish to create a business that provides addictions treatment or assistance and shelter to battered women, for instance. However, forming a business as a tax-exempt organization is a rather complex enterprise, and should be undertaken with the guidance of a Massachusetts tax planning attorney.

Types of Non-Charitable Enterprises Eligible for Tax-Exempt Status

Organizations and businesses with tax-exempt status generally are recognized as those set up as non-profits. One should not confuse this with charitable organizations. Among the many non-charitable organizations that are tax-exempt are:

  • Recreation and/or social clubs
  • Fraternities
  • Credit unions
  • Mutual insurance companies
  • Labor unions
  • Civic leagues
  • Legal services enterprises

In each case, there exists a purpose beyond making money. For instance, a credit union differs from a bank because the former is formed and owned as a kind of mutual trust, whereas a bank is a private for-profit. Any federal- or state-run organization will almost certainly be considered non-profit.

Charitable Non-Profits

The Internal Revenue Code §501(c) (3) enumerates those types of businesses and organizations that can file for non-exempt status as charities. Most people automatically think of churches and schools, but many other entities are named as well, including those dedicated to scientific research and for developing amateur athletes. The stipulation for tax-exempt status is that the business exists outside of the realm of for-profits.

While this may seem rather straight-forward, at times the line blurs a bit. For instance, an individual may create dual businesses that provide drug treatment services. One is set up as a non-profit, and the other as a for-profit. While each provides humane services, this does not, in itself, define it as a charitable non-profit. The for-profit is organized so that an individual, partners, or shareholders enjoy profit from the enterprise. Maintaining these dual enterprises can be tricky, for if any money is passed between them the IRS will surely take note. A Massachusetts tax planning attorney can provide structural assistance to the non-profit to avoid such a situation.

Specific Tax Exemptions

Among the tax advantages of non-profits are an avoidance of business taxes on profits (which must revert to the organization). This includes donor contributions and public and private grant money. Employees, meanwhile, are taxed on their incomes, but can be granted benefits, including insurance and pension plans.

For Further Questions

If you are interested in forming as a tax-free non-profit, it is vital that you receive quality legal assistance. Call a Massachusetts tax planning attorney at Ionson Law at 781-674-2562.

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