Forming a nonprofit doesn’t automatically mean your organization is tax-exempt. To obtain tax-exempt status, you must first apply to the IRS. And when it comes to tax exemption, not all nonprofits are created equal!
While there are dozens of different types of tax-exempt nonprofit organizations recognized by the IRS, some of the most common types include:
501(c)(3) – Charitable, religious, or educational organizations
501(c)(4) – Social welfare organizations
501(c)(5) – Labor, agricultural, and horticultural organizations
501(c)(6) – Business leagues and professional associations
When applying for tax-exempt status, it’s important to find the right fit for your organization. You’ll need to consider your mission, your activities, the community you serve, and any plans for political engagement.
For example, most 501(c)(3) organizations may engage in limited political lobbying efforts – such as testifying at public hearings, hosting nonpartisan debates, or speaking with policymakers about specific legislation – as long as it is not a substantial part of the organization’s overall activities. But they may not endorse political candidates, participate in political campaign activities, or share partisan political messages. And while many 501(c)(3) organizations engage in a small or insubstantial amount of legislative lobbying, too much lobbying of any kind risks the loss of their tax-exempt status.
On the other hand, 501(c)(4), (c)(5), and (c)(6) organizations are allowed to engage in relatively unlimited lobbying efforts related to their mission. These organizations can also participate in limited political campaign efforts and endorsements, as long as it is not their primary activity. In general, these organizations are allowed to publicly advocate for political causes in a way that 501(c)(3) organizations cannot.
For more information about the differences between common types of tax-exempt organizations, read more here or contact a trusted accountant to help you navigate the complex world of tax-exempt statuses for nonprofits.