Non profit tax exemption

[sefnfot]

What is the name of your state? California
Do you have to pay the annual $800 ftb tax if you get the tax exemption status for your non profit in California?

I bought a historical house, which I want to start a non profit so I can fundraise for it.

 

[Taxing Matters]

Note that the terms "nonprofit" and "tax exempt" do not mean the same thing in either federal or CA tax law. What you want to avoid paying the CA $800 annual minimum franchise tax and CA income tax is for your organization to apply to the FTB for tax exempt status. CA FTB publication 927 provides an introduction to tax exempt and non profit entities. You'll also need to get tax exempt status from the IRS for the entity to avoid paying federal income tax. IRS Publication 557 explains what entities qualify for tax exemption and how to apply for the tax exemption. Note that the CA and federal rules are not the same; the entity may be exempt with CA and not the IRS and vice versa. You have to make sure you meet the requirements for both if you want exemption from both federal and state income/franchise taxes and state sales tax.

There is one critical thing to remember above just about everything else: for the entity to be tax exempt under CA and federal law you may not financially benefit from it. If you financially benefit from it you'll lose the exemption and potentially be subject to penalties as well.

There are a lot of types of tax exempt organizations. But only a few types will get a donor a tax deduction for contributions made to the organization. Under federal tax law, those are donations to charities, governmental organizations, and certain educational institutions (generally those that are tax exempt or are government owned and operated). IRS Publication 926 covers which contributions will qualify for the deduction. Note that are specific requirements for what kind of documentation you must provide for donors in order for them to get the deduction.

Finally, if a tax exempt organization does earn some income unrelated to its exempt tax status it must file an unrelated business income tax (UBIT) return. In addition, tax exempt organizations must peroidically file an information return (Form 990) to report its activities to the IRS. Failure to file that return when required may subject the organization to penalties.

If you are not familiar with operating an exempt organization you may find it worthwhile (and worth the money) to consult an attorney who practices in the area of exempt organizations.

 

[sefnfot]

Note that the terms "nonprofit" and "tax exempt" do not mean the same thing in either federal or CA tax law. What you want to avoid paying the CA $800 annual minimum franchise tax and CA income tax is for your organization to apply to the FTB for tax exempt status. CA FTB publication 927 provides an introduction to tax exempt and non profit entities. You'll also need to get tax exempt status from the IRS for the entity to avoid paying federal income tax. IRS Publication 557 explains what entities qualify for tax exemption and how to apply for the tax exemption. Note that the CA and federal rules are not the same; the entity may be exempt with CA and not the IRS and vice versa. You have to make sure you meet the requirements for both if you want exemption from both federal and state income/franchise taxes and state sales tax.

There is one critical thing to remember above just about everything else: for the entity to be tax exempt under CA and federal law you may not financially benefit from it. If you financially benefit from it you'll lose the exemption and potentially be subject to penalties as well.

There are a lot of types of tax exempt organizations. But only a few types will get a donor a tax deduction for contributions made to the organization. Under federal tax law, those are donations to charities, governmental organizations, and certain educational institutions (generally those that are tax exempt or are government owned and operated). IRS Publication 926 covers which contributions will qualify for the deduction. Note that are specific requirements for what kind of documentation you must provide for donors in order for them to get the deduction.

Finally, if a tax exempt organization does earn some income unrelated to its exempt tax status it must file an unrelated business income tax (UBIT) return. In addition, tax exempt organizations must peroidically file an information return (Form 990) to report its activities to the IRS. Failure to file that return when required may subject the organization to penalties.

If you are not familiar with operating an exempt organization you may find it worthwhile (and worth the money) to consult an attorney who practices in the area of exempt organizations.

Thank you
I'll try to review those publications