Tax Benefits of Charitable Organizations

There are many different types of tax benefits that a charitable organization can have. The primary one, which you may be familiar with, is being eligible to accept tax-deductible charitable contributions. But there are others you should know about too. Let’s dive into the tax benefits of charitable organizations. 

Contributions to Your Organization are Tax Exempt

Say for example, a CEO of a company wants to contribute to your nonprofit organization, and you qualify for tax-exemption status and remain compliant. The company will be able to deduct their charitable contribution to your organization when the company files their annual taxes. If the company contributes $1,000 to your organization, that lowers their overall tax bill by $1,000. That’s a pretty significant benefit for both you and the company! 

Eligible for Grants from Private Foundations

As a tax exempt organization, you are also eligible to apply for grants from private foundations, as long as you have maintained your compliance by filing an annual Form 990. There are other ways to access foundation grants, but it is much more difficult and complicated if your organization does not maintain compliance. Many foundations will only award grants to 501c3 organizations. 

Eligible for Tax-Exempt Bonds (Only some types of organizations)

Tax-exempt bonds are bonds where the interest component of bond debt service payments is exempt from federal and sometimes state and local income taxes for the bond holder. Tax-exempt bonds are rare, and most apply to very large organizations such as hospitals and educational institutions. But if you have big plans for the future of your nonprofit organization (we hope you do!), it is certainly something you should consider. Eligible tax bonds borrowers, as outlined by federal tax rules include: nonprofit healthcare, nonprofit higher education, nonprofit K-12 schools, other nonprofit institutions such as museums, YMCAs, and YWCAs, and low-income multifamily housing, industry and manufacturing for defined types of exempt facilities.

Eligible for State Tax Exemptions

State tax exemptions depend on your state, as every state has its own rules.  Be sure to know the rules and guidelines of your own state to see what applies to your organization. New York, for example, allows 501c3 nonprofit organizations to gain sales tax exemption - which could save your organization a lot of money over the years! 
We hope this helped clear up some of your questions about the tax benefits of charitable organizations. If you still have questions you can always give our team of nonprofit experts a call!