If you have an organization, why do you have to pay extra taxes?

People always say to go the non-profit route so that you don't have to pay taxes. But what are these taxes? If my organization feeds homeless people, what exactly are these taxes that I'm paying? I don't get it.

Bonus Question: How do you create an organization without being a non-profit?

8 months ago - 4 answers

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You become a non-profit so people giving you money to help the homeless get a tax deduction. If you are not an official IRS 501 (c) 3 non-profit they get NO TAX DEDUCTION by giving you money. THAT is why you become an official non-profit.

If you are not a non-profit you pay income taxes on the excess of revenues over expenses. You have heard of income taxes right? So if a rich person gives you $1,000,000 to buy a building to put your soup kitchen in (which they wouldn't do because they get no deduction, but assume they do.). You would pay income taxes on it as you can't immediately deduct the cost of a building.

Any organization created is assumed to NOT being a non-profit. You then file to become a non-profit.

8 months ago

Other Answers

" I don't get it."

It may help to first understand that the US tax scheme is based on "taxing the value of enrichment". If somebody gives you 50K, the first assumption is that you've been enriched by that much. Logical, right? You would then demonstrate that you had certain expenses allowed by the tax scheme to help lower the value of the enrichment. In a given tax year, if that adjusted enrichment value is non-zero, you are taxed on that.

Policymakers understand that some organizations are created to serve a societal need, and may be able to deliver into those needs more efficiently than the government with its attendant (and sometimes clumsy) infrastructure. To that end, they ordain qualifying organizations with a status that ignores the enrichment in a given tax year, and assist the qualified organization in its operational mission funding by allowing donors to claim a deduction (ie, exclude from normal taxation of the donor's tax year enrichment) for monies (typically) gifted during that tax year. That is why a societal improvement organization files for NFP status.

There's obviously a complex set of rules which are intended to insure that all of the other non-involved taxpayers aren't being cheated out of the available tax monies party to your organization, but I'll leave that up to your own accountant.

"How do you create an organization without being a non-profit"

All organizations are initiated as *for-profit* under the US tax scheme. To become non-profit under IRS section 501(c) (3) rules, you need to apply to the IRS with Form 023: . Note that there are several types of NFP organizations. My yacht club, for example, is a 501(c) (7).


by Jim S - 8 months ago

they have it backwards; never bother having a non-profit
till you have had a profit operation--let the profit operation finance the non -profit one.

OF one starts with a Research and Development
operation, one won't have taxes to pay for "ages."

and under EXPENSES, a business owner can
"shelter" most any prospective profits.

by kemperk - 8 months ago

You don't. The organization (if it is a corporate entity) pays its own taxes out of its profits (Corporation Tax).
As you may have read many companies are avoiding corporation tax by taking the profit offshore.

If you have a non-profit organization then all of the profit will go to the running of the business including employees, who will pay income tax on their wages.

by Raysor - 8 months ago