As a business owner, you may have heard of 501(c) and 501(c)(3) organizations, but do you know the differences between them? Understanding these differences is crucial when it comes to setting up your own nonprofit organization. In this blog post, we'll dive into the details of what sets these two types of organizations apart.
501(c) organizations are tax-exempt organizations recognized by the Internal Revenue Service (IRS). They are typically social clubs, labor unions, or business leagues. These organizations are exempt from paying federal income tax but are still required to file annual tax returns.
501(c)(3) organizations are also tax-exempt organizations recognized by the IRS. However, these organizations are established for charitable, religious, educational, or scientific purposes. They are exempt from paying federal income tax and are also eligible to receive tax-deductible contributions from donors.
Key Differences Between 501(c) and 501(c)(3) Organizations
- Tax-Exempt Status: Both types of organizations are tax-exempt, but only 501(c)(3) organizations are eligible to receive tax-deductible contributions from donors.
- Eligibility for Grants: 501(c)(3) organizations are eligible for a wider range of grants and funding opportunities than 501(c) organizations.
- Required Documentation: 501(c) organizations are required to file annual tax returns, but 501(c)(3) organizations must also file Form 990 with the IRS.
- Public Disclosure Requirements: 501(c)(3) organizations are required to disclose certain information, such as their annual tax returns and Form 990, to the public upon request. 501(c) organizations do not have the same public disclosure requirements.
- Activities and Restrictions: 501(c) organizations are generally free to engage in any lawful activity, while 501(c)(3) organizations are subject to more restrictions on their activities, such as limitations on political lobbying and campaigning.
Understanding the differences between 501(c) and 501(c)(3) organizations is critical when establishing a nonprofit organization.
If you need assistance with setting up a nonprofit organization or have questions about the differences between these two types of organizations, contact Perliski Law Group today.