Now that we've discussed the personal and household exemptions available to taxpayers, let's talk about an entirely different chapter of the tax code: tax-exempt organizations. Congress recognizes certain types of organizations as contributing to the public good. These organizations — typically, but not exclusively nonprofits —can apply to the IRS for an exemption from taxes on any business revenue.
Examples of tax-exempt organizations (and their associated chapter of the tax code) include:
- Charitable organizations — 501(c)(3)
- Churches and religious organizations — 501(c)(3)
- Private foundations — 501(c)(3)
- Civic leagues and social welfare organizations — 501(c)(4)
- Business leagues and trade associations — 501(c)(6)
- Social clubs — 501(c)(7)
- Veterans organizations — 501(c)(19) and 501(c)(23)
- Political organizations (that promote the election of political officials, not lobbying groups) — 527
Even small organizations can benefit. For example, tax-exempt status is available for certain childcare organizations under chapter 501(k). Let's say you run a small daycare out of your home. If the majority of your clients are people who could not otherwise work without placing their kids in childcare, and if you're open to all kids within a certain age range, you could qualify as tax-exempt [source: IRS].
To find out how your organization can gain tax-exempt status, read the IRS instructions in Publication 557.