Advantages of Receiving 501(c)(3) Charitable Nonprofit Status
Tax Exemption/Deduction
Organizations that qualify as public charities under Internal Revenue Code 501(c)(3) are eligible for federal exemption from payment of corporate income tax. Once exempt from this tax, the nonprofit will often be exempt from similar state and local taxes. If an organization has obtained 501(c)(3) tax-exempt status, an individual's or company's charitable contributions to this entity are tax-deductible.
Eligibility for public and private grants
Many foundations and government agencies limit their grants to public charities. Nonprofit organizations also can offer tax deductions to individuals or businesses that give charitable contributions.
Formal structure
A nonprofit organization exists as a legal entity in its own right and separately from its founder(s). Incorporation puts the nonprofit's mission and structure above the personal interests of individuals associated with it.
Limited liability
Under the law, creditors and courts are limited to the assets of the nonprofit organization. With some exceptions, the founders, directors, members, and employees are not personally liable for the nonprofit's debts. With that said, a person cannot use the corporation to shield illegal or irresponsible acts on their part. Also, board directors have a fiduciary responsibility to perform their roles in the nonprofit's best interests, with a failure to do so potentially resulting in their being held liable.
Lower Postal Rates
501(c)(3) nonprofits are eligible for lower postal rates on third class bulk mailings through the United States Postal Service.
Access to Lobbying
Can make the 501(h) election (with the exception of private foundations and churches, who may not make the 501(h) election). Under the federal tax code, all 501(c)(3) public charities are allowed to lobby. The 501(h) election provides clear guidance on the definition of lobbying for 501(c)(3) public charities and on how much money may be spent on lobbying.
