Money & The Economy

Does registering a non-profit have tax benefits?

Non-Profits In The U.S

Non-profit organizations operate as independent legal entities. Thus, the organization is allowed to form its material base, which is built by the receipt of donations and contributions. The non-profit organization uses the funds received to implement the goals of creating the organization and the economic activities of the non-profit organization. The events of NGOs are aimed at organizing charity, meeting the social needs of the population, supporting scientific research, developing culture and art, developing physical culture and sports, preventing and protecting the health of citizens, promoting a healthy lifestyle, and improving the moral and psychological state of citizens.

Do Non- Profits Have Tax Benefits?

Non-profit organizations have several advantages over other legal entities. Many create non-profit organizations individually in order to obtain these certain benefits. So what are the benefits for NGOs? Who has the right to them and how to get them? Let’s get it right. TRUiC explains these benefits clearly on their website:

Tax Incentives For Non-Profits

Specialists of the International Law Firm conduct consultations on taxation issues of organizations. Experienced auditors and lawyers will provide up-to-date information on tax benefits for non-profit associations. For non-profit organizations, the law provides for the possibility of entrepreneurial activities to achieve these statutory goals. Non-profit associations are required to pay statutory taxes and fees. This obligation does not depend on its business activities. It reflects the fundamental principles of tax legislation: equality and universality in the fulfillment of the obligation to pay taxes and fees to the budget.

At the same time, the Tax Code of the US Federation provides tax incentives for non-profit associations. The Law “On Non-Profit Organizations” also establishes a preferential tax payment regime for socially oriented non-profit organizations. So, for example, the charity fund has privileges when paying fees and taxes.

Consider the main tax benefits for non-profit associations.

Income tax is not subject to :

  • targeted, introductory, insurance, membership fees of founders (participants, members) of non-profit organizations;
  • donations
  • income in the form of gratuitously received by non-profit organizations works (services) performed (rendered) based on relevant agreements;
  • financial transfers from budgets of all levels for specific purposes specified in the charter of a non-profit structure;
  • money or other property received as gratuitous aid;
  • funds for house overhaul credited to the accounts of a specialized consumer cooperative.

Educational and medical non-profit organizations applying for the profit tax rate of 0% must meet several signs:

  • have a license to conduct medical and educational activities;
  • based on the tax period results, the size of NPO income from core activities, taken into account when calculating the profit base, is at least 90% of the total revenue, or the organization does not have the income taken into account when calculating the profit base;
  • not less than 50% of the total number of employees of a medical organization have a specialist certificate. Such statistics are maintained throughout the tax period;
  • in the reporting period, the size of the staff of NCOs is at least 15 people;
  • NPO in the tax period does not conduct bill transactions and operations with derivative financial instruments.

The legislation establishes the obligation of non-profit organizations entitled to tax benefits to carry out separate accounting of income for which income tax is a charge. Moreover, NPOs are required to prove, if necessary, the fact of the targeted use of all financial revenues. It is essential to correctly reflect the target amounts when calculating profits and tax payable. At the end of the tax period, the taxpayer must send a report on the intended use of the funds received to his tax authority.

Final thoughts

It is worth adding that the subjects of the US Federation have the right to determine differentiated rates for local and regional taxes. They are dividing criteria – the category of taxpayer company, type of property for which tax is calculated. And they can also establish tax incentives for companies, including non-profit organizations, and the grounds for their application. For example, they do not pay land tax for non-profit organizations whose lands are provided and used for placement of medical facilities, as well as educational, social security, and cultural facilities.

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