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Should I pursue 501(c)(3) exempt status?

Your Legal Questions Answered

Should I pursue 501(c)(3) exempt status?

I am the organizer of a nonprofit that offers holistic healing services to the underprivileged population at little to no cost. I had been planning to progress into a true 501(c)(3) so that I could compensate the (licensed and certified) practitioners who offer their services with a tax exemption commensurate with their time.

As I have investigated the legal playpen of the IRS, I find that one will not be able to take a deduction for a contribution of their services. Knowing this, would it be impractical to further pursue the 501(c)(3) status? Although we do expect financial donations at some point, right now we are simply organizing in the community with donations of time and space. The whole point of this organization is so that people who do not have money don't have to exchange money to be provided with healing services.

If you intend to continue to develop the organization, it definitely makes sense to pursue the charitable exempt status.  It will take money to develop a sustainable program to keep your center open and the most likely source of that money if you don’t intend to charge your clients significantly is from charitable contributions.  If you are recognized as a 501(c)(3) charity, you can solicit financial contributions to raise that money.  You may also be able to compensate your practitioners with real money, not just a pat on the back and a thank you letter.

In addition, if you don’t claim some type of exemption, you will be treated as a regular taxable business and be required to file regular income tax returns.

Tuesday, October 16, 2012

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