By Nicole Martin,
/ Advertising Disclosure

Tax is a reality for most businesses and individuals, and while it is a great tool for covering the costs of essential public services, it is also not something you want to pay out unnecessarily.

Thankfully there are not only forms of tax relief and exemptions for people paying their income tax bills, but also for entire organizations.

In fact, it is possible that your business could be completely exempt from paying some forms of tax. So how can you work out whether this applies to you? Here are a few things to consider.

Types of tax-exempt organizations explained

The IRS offers tax-exempt status to several types of businesses and institutions, typically in order to encourage the work they do or provide financial support so that they are less encumbered by operating costs which other organizations are expected to pay via the EFTPS.

First up, if your business is charitable in nature, or performs an educational or religious function, then it could be eligible to steer clear of certain federal taxes which would otherwise be mandatory.

This includes charities that deal with specific social issues, as well as churches, schools, colleges, and universities. It also factors in societies within such organizations, such as school fraternities and sororities, for example.

Other types of tax-exempt organizations include labor unions and other groups which are set up to protect the rights of working people, as well as industry-specific organizations which are dedicated to promoting the interests of a given sector, such as agriculture.

In addition to these various businesses and organizations, it is also possible for companies which are involved in scientific research to receive tax exemption at a federal level. The main requirement in this case is that the research be in the public interest, and that any findings that are published can also be viewed freely by anyone who wants to see them.

Top level eligibility requirements

There is plenty of variety and scope when it comes to tax-exempt businesses, but broadly speaking you can expect your application to be successful if a few main requirements are met.

One important factor is that any owner or founder of the organization is not allowed to receive net income from the business.

This is where the concept of non-profit really comes into play, because the expectation is that if your business is making money hand over fist, it probably does not need government tax relief to keep going.

Another is that the organization should not set out to sway political campaigns in any way, since this is needed to ensure that tax exempt status is handed out fairly.

Other aspects to appreciate

While tax exempt status is available to lots of different organizations, this is mainly applicable for federal-level taxes which would normally be paid to the IRS.

Even if you successfully apply for tax relief in this context, you will likely be expected to pay local taxes of some kind, or to apply for further exemption at the state level as well.

Of course if you are in any doubt about the process of finding out if your business could be exempt from taxation, or you are looking for help with the application process to give you the greatest chance of succeeding, then working with an expert makes sense.

While it is possible to apply to the IRS under your own steam, even small businesses should be able to justify the expense of getting a fully accredited accountant to assist them at this point, even if you do not want to hire a permanent team member to tackle it.

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