Organizations classified as non-profits are those whose primary goal is serving the public rather than its shareholders or members. They are exempt from paying some taxes, such as sales taxes, property taxes, and federal and state income taxes. Non-profit organizations are not all automatically exempt from paying taxes, though. A non-profit organization must apply for tax-exempt status with the Internal Revenue Service (IRS) in order to be regarded as tax-exempt.
A non-profit organization needs to satisfy a number of conditions in order to be granted tax-exempt status. A 501(c)(3) organization is the most typical kind of tax-exempt organization. These organizations must be established and run solely for the prevention of cruelty to children or animals, or for charitable, scientific, literary, or educational reasons. Additionally, political campaigning is not allowed for them.
The IRS also requires non-profit organizations with tax-exempt status to submit yearly reports. These reports offer details about the organization’s finances, including its revenue sources and its spending patterns. The loss of tax-exempt status may arise from failure to submit these reports.
Non-profit organizations may also be exempt from state and municipal taxes in addition to the federal tax exemption. Non-profit organizations are free from paying state income taxes and sales taxes, for instance, in Arizona. Arizona’s state sales tax is 5.6%, although some towns and counties may impose additional taxes.
Arizona’s state income tax and sales tax are different in that the former is based on an individual’s or organization’s income and the latter is based on the acquisition of goods and services. Depending on income, Arizona’s state income tax rates range from 2.59% to 4.5%.
Kearny, with a 2% sales tax rate, is the city in Arizona with the lowest sales tax rate. However, it’s significant to remember that, depending on certain jurisdictions, sales tax rates can vary within a city or county.
A 501(c)(3) organization is a charitable organization, but a 501(c)(10) organization is a fraternal organization. This is the final distinction between the two types of organizations. Social clubs or fraternities are examples of fraternal organizations—social groups set up for the benefit of their members.
In conclusion, non-profit organizations are eligible for tax exemption, but only if they satisfy specified criteria and submit an application to the IRS. Non-profit organizations are not required to pay state income taxes or sales taxes in Arizona, while local governments may have different sales tax rates. In order to keep their tax-exempt status, non-profit organizations must be aware of their tax responsibilities and complete the required reports.
Yes, you must send a 1099 form to a 501c6 organization if you paid it $600 or more in a single year for services done. Payments paid to independent contractors, freelancers, and vendors are reported using the 1099 form. Non-profit organizations are not excluded from obtaining 1099 forms even though they are tax-free.