Do Non Profit Groups Pay Income Taxes ?
Non profit groups do not need to pay income taxes for the simple reason that their income is not taxable by law. Section 501(c) (3) of the US Constitution states that a charitable institution or a non-profit organization is exempt from taxation. |
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However, these are limited to certain regulations and rules. This calls for all income to be clearly recorded, and all the documents supporting necessary evidence such as salaries, expenditures, donations, etc. must be filed. All money transactions should have receipts. All the expenses incurred must be of the organization only, and not of an individual, including heads and high officials.
The income generated from benefits and fundraisers has to be diverted in the interest of funding the work of the non-profit organization. For example, if a non-profit is supporting a certain cause and it wants to do a fundraiser by selling some wholesale commercial items at a retail price for the sake of money, that income should go towards the cause that they are supporting and not anywhere else. Only then, their income is tax exempt.
Political and lobbying of such organizations are restricted, and may not entertain private parties, shareholders or individuals. All non-profits are strongly recommended to apply to the IRS for the sake of exempt status. They have to be recognized in order to give them the status of a charitable institution or a non-profit.
The donations that are given to a non-profit are also deductible from taxable income of an individual or a firm. This allows for many people to support causes that they believe in, and not having to pay taxes while doing so. However, wrong use of this practice can result in penalty and trial in a court of law.
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