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Not-for-profit organizations in the United States -- and there are more than 600,000 of them -- can qualify for tax-exempt status under federal income tax laws. However, tax-exempt status does not necessarily mean that a donation to the organization is tax deductible on the donor's income tax. That is why many organizations, including Bhaktivedanta College, apply for 501(c)(3) status.
The name comes from the section of the Internal Revenue Service Code that describes such organizations. An organization may qualify for 501(c)(3) status if it is organized exclusively for one of several specific purposes. The organization must also be a corporation or foundation. Bhaktivedanta College is incorporated in the state of North Carolina and qualifies for tax exemption as an educational organization. Bhaktivedanta College is designated by the IRS as a "public charity" because it receives a substantial part of its income, directly or indirectly, from the general public. Bhaktivedanta College receives no federal or state funding.
The Internal Revenue Service code sets specific standards for 501(c)(3) organizations and monitors the groups adherence to them, such as:
- No part of the organization's net earnings may inure to the benefit of an individual.
- The organization cannot, as a substantial part of its activities, attempt to influence legislation (lobby) or participate in a political campaign for or against any candidate for public office.
- Meetings of the organization must be open to the public.
- The organization must obtain an employer identification number, even if it has no employees.
Bhaktivedanta College meets all of these qualifications.
Obtaining tax-deductible status involves a lot of paperwork, but there are specific benefits to the organization and to its benefactors:
- The organization itself is exempt from paying federal income tax (but still may be required to file annual income information).
- Donations to an exempt organization are deductible as charitable contributions on the donor's federal income tax return, if the donor files an itemized tax return.
- Non-reimbursed expenses related to volunteer work with the organization are tax deductible if the volunteer files an itemized tax return.
- The IRS code sets certain limitations on tax-deductible donations to 501(c)(3) groups.
- Individuals giving to 501(c)(3) organizations that are public charities may deduct contributions representing up to 50% of the donor's adjusted gross income if the individual itemizes on his tax returns. Persons who do not itemize may not deduct charitable donations on their federal income tax returns.
- Corporations may deduct all contributions to 501(c)(3) organizations (regardless of foundation status) up to an amount normally equal to 10% of their taxable income.
Since tax laws change to get the latest information visit the IRS web site (opens new window).
Why are we telling you this?
- We want you to know the difference between a tax exempt and a tax-deductible organization.
- We want you to be an informed donor to Bhaktivedanta College and any other organizations you choose.
- We would like you to educate your employer about the benefits of making a donation to Bhaktivedanta College.
- We want you to be able to make your donation and take the deduction as easily as possible.
The Council of Better Business Bureaus (BBB) of the United States offers these tips on making and deducting contributions:
- Contributions are deductible for the year in which they are actually paid.
- Under IRS rules, you can't deduct a donation of $250 or more without a detailed receipt. Ask for one.
- Membership dues that cover the cost of privileges and benefits received by the member are not deductible.
- The value of volunteer time or services to a charitable organization is not deductible. However, out-of-pocket expenses directly related to voluntary service are usually deductible.
- The price of participating in a raffle or similar drawing cannot be deducted as a charitable donation. Similarly, only contributions in excess of the regular price of a gift or other benefit are deductible. For example, if you purchase for $10 a box of candy that normally sells for $8, only the $2 difference is tax deductible.
- There are special guidelines for deducting the fair market value of donated property. Contact a tax advisor for details.
For latest tips visit the BBB site (opens new window).