A History Of Growing Trust In Kentucky

How can non-profit organizations maintain a tax-exempt status?

On Behalf of | Jan 14, 2025 | business law

Non-profit organizations play important roles in their communities by helping with social, educational, and charitable needs. Keeping tax-exempt status allows these groups to use their resources wisely and focus on their goals. To keep this status, organizations must follow specific rules and laws.

Follow operational rules

Non-profits must stick to the purpose listed in their 501(c)(3) approval, like helping with education, charity, or religion. Making money from activities not related to their mission could cause problems. The IRS checks to make sure a group’s work matches its stated goals, so leaders should review their activities often.

File required forms on time

Non-profits must file a Form 990 every year to report their finances. If a group fails to file for three years in a row, they lose their tax-exempt status. Keeping good records and meeting deadlines helps avoid issues with the IRS.

Stay out of politics

Non-profits can do a little lobbying, but they cannot take part in political campaigns or support candidates. The IRS rules are strict about this, so organizations must be careful with any political activities.

Practice good governance

Good leadership helps non-profits follow the rules. Groups should have a board of directors, hold regular meetings, and keep detailed notes. Using clear financial practices and controls can prevent mistakes and build trust.

Be careful with fundraising

All fundraising must support the group’s mission and follow legal guidelines. Misleading donors or not reporting contributions properly can lead to penalties. Honest and transparent fundraising builds trust with supporters.

Keep up with changing rules

Tax laws and other rules can change. Non-profit leaders should stay informed about new regulations. Getting advice from legal or tax professionals can help groups follow the law and avoid problems.

By following these steps, non-profits can keep their tax-exempt status and continue making a difference in their communities.

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