Non-profit organizations are generally referred to as 501(c) as covered by section 501(c) (3) of the United States Internal Revenue Code. Under this code, many types of organization receive some federal income tax exemption. The most common type of non-profit organization, the 501(c)(3), is what we are most likely to think when we imagine “non-profit” and the charities we use. The organization should use one or more of specific purposes to achieve an exemption from taxation as a non-profit of 501(c)(3).
Furthermore, “charitable” organizations or military 501 c 3 charities must explain how they benefit the public good. When your organization applies as a charitable organisation, it must demonstrate that it is organized and operated for public interest purposes.
. Education or science advancement
. Education or maintenance of public structures, monuments or works
. Lessening governmental burdens
. Less tensions in the neighborhoods
. Elimination of prejudice
There are two main categories of charity foundations. The public charity foundation and private charity foundation.
Public Charity Foundation
According to IRS, a public charity is a non-private foundation. The majority of public charities are paid by the general public or the government for their income. Public support needs to be large, not limited to a few individuals or families.
Private Charity Foundation
A private foundation is the second category. These are private foundations which work for common good and charity.
The 501(c)(3) organization shall satisfy a number of requirements beyond the charitable purpose specified above in order to receive tax-exempt benefits. Some of these are:
. It shall not be organized or operated for private purposes. No private shareholder or individual may benefit from their net income. Non-profits can make a profit, but only charitable purposes must support that profit.
. Their political and grouping activities are restricted.
. Advantages of Non-profit 501(c)(3)
. A non-profit organization is helpful in seeking a tax exemption. The benefits include subsidies that can be provided by private and governmental foundations.
. It is free of many taxes from federal, state and local authorities.
. It can give individuals, a tax deduction.
. The protection against lawsuits is limited. Because a charitable organization normally consists of its corporate assets only before seeking tax exemption. This provides legal protection for staff and board members. However, this protection may not cover every situation.
Drawbacks of 501 C 3 foundations
Revenue-generating activities not related to the non-profit purpose of the group are limited. When the Non-Profit organisation closes, it shall give its remaining assets, (after paying creditors), to another non-profit institution. The Non-Profit Organization may have to pay taxes and penalty if they are large.
Thus, we have seen in detail, the key aspects allied to 501 c 3 charities.