501(c) is a subsection of the US Internal Revenue Code (IRC). The subsection applies to non-profit organizations and tax law; in particular, it is indicated which non-profit organizations are exempt from federal income tax. The term 501(c) is often used to refer to organizations which have obtained legal status under this paragraph.
look at a glance
— Section 501(c) of the Internal Revenue Code designates certain types of organizations as Tax exempt – they do not pay federal income tax.
— Joint Tax-exempt organizations include charities, government agencies, interest groups, educational and arts groups, and religious organizations.
— The 501 (c) (3)-organization is probably the best-known entity.
— Donations to certain qualified tax-exempt organizations may be deducted from a taxpayer’s income.
Under paragraph 501 (c) several articles delimit the various types of exempt organizations according to their purpose and activity.
The most common include:
— 501 (c) (1): Any corporation incorporated under a statute of Congress and exempt from federal income tax
— 501 (c) (2): Companies in possession of an exempt organization title
— 501 (c) (3): Companies, funds or foundations that operate for religious, charitable, scientific, literary or educational purposes
— 501 (c) (4): Non-profit organizations that raise or promote social welfare
— 501 (c) (5): Workers’, agricultural or horticultural associations
— 501 (c) (6): trade leagues, chambers of commerce, etc. not profit oriented
— 501 (c) (7): Recreational facilities
501(c) (3) organizations
The 501 (c) (3) organization is probably the most well-known tax category described in section 501 (c) (3) of the IRC. It covers the type of nonprofit organizations that people often come into contact with and give money to (see Special Considerations below).
In general, there are three types of entities eligible for 501 (c) (3) status: charities, churches/religious organizations, and private foundations.
Other Types of 501(c) Organizations
The 501 (c) designation has broadened to include more types of organizations over time.
Other organizations that qualify to be listed under this designation are fraternal recipient societies that operate under the lodge system and provide their members and dependents with payment for life, illness and death and other advantages. Teachers’ pension funds are also included, provided they are local in nature and their net income does not increase in favor of a private shareholder. Locally established non-profit life insurance associations may also qualify for this designation. Some mutual electricity and telephone cooperatives may also be classified under 501 (c). Cooperative not-for-profit health insurers may also be eligible.
Cemetery societies that are owned and operated exclusively by their members or that are not operated for profit may receive this designation. Credit unions that have not built-up share capital, insurers – other than life insurance companies – with gross receipts of less than $ 600,000, and various trusts for purposes such as granting Unemployment benefits and retirement benefits may receive this designation and exemptions if they meet the requirements meet all of the underlying criteria.
There are also approvals for organizations made up of current and former members of the
United States Armed Forces or their spouses, widows, descendants, and service units that support them.
In addition to being tax-exempt themselves, 501 (c) organizations offer a tax advantage to others: a portion of the donations they receive can be deducted from a taxpayer’s Adjusted Gross Income (AGI). Organizations falling under section 501 (c) (3) – which are primarily charities and nonprofits focused on education or social welfare – are often qualified to provide this benefit to donors.
In general, a person who includes deductions on their tax return can deduct contributions to most associations up to 50% (60% for cash contributions) of their adjusted gross income, which is calculated without taking into account net operating loss carry forwards. Individuals can generally deduct charitable contributions to other organizations up to 30% of their adjusted gross income.
A charity or nonprofit must have 501 (c) 3 status in order to deduct your donation from your federal income tax return. The organization itself can often tell you what types of donations deductible and what amounts are – for example, if you buy a one-year museum membership for $100, $50 may be tax-deductible. The IRS provides a database of exempt organizations that you can use to check the status of an organization.