501(c)3: It's Not Just for Churches Anymore

I know how exciting you find the tax codes, so today, boys and girls, we're going to learn about 501(c)3 and its many applications. Most of you probably think of 501(c)3 as that part of the code that makes churches tax exempt and you'd be right, to an extent. But it's so much more than that. Here's a brief FAQ for 501(c)3:

"Oh, Great Tax G-ddess, what kinds of organizations are tax-exempt under 501(c)3?"

Well, minion, all sorts of organizations can get tax-exemption under this code. Churches, synagogues, mosques, temples, schools, scouting organizations, fraternal organizations, think tanks, cultural institutions like museums and theaters, charities, religious associations like YMCA, historical societies, benevolent societies like the Shriners, hospitals and health clinics, and even public parks and playgrounds are tax-exempt as long as they are what we call non-profit.

But Great Tax G-ddess, what does non-profit mean?

Non-profit, little minion, means that the purpose of the organization is something other than making money.

For instance, McDonald's is a profitable business. The owners want to make money for their own use. They do this by trying to make sure that the money they spend on labor, supplies, advertising, taxes, etc. is less than the money they take in from people who want to fill their bodies with artery-clogging cholesterol molecules. Any money that's left over after they pay all of the bills goes into the owners' pockets.

A museum, on the other hand, is non-profit. Their purpose is to expose the public to works of great art or historical artifacts. They get their money from people who donate it, from the people who come to see the museum's exhibits, or from renting out art or artifacts that they're not using at the moment. Sometimes, they lose money or just break even. If they make money, it doesn't go to the owners, it goes to buying more art or artifacts for people to see when they come to the museum.

I understand that, Great Tax G-ddess, but aren't churches and religious organizations automatically tax-exempt?

No, a church or religious organization is only tax-exempt if it files for and receives tax-exempt status under 501(c)3 just like all of the other non-profits.

But, Great Tax G-ddess, what if the church has a profit-making business like a bookstore?

Tax-exemption only applies to the activities that are not for profit. So, if the church has a soup kitchen, it doesn't pay taxes on that, but the church would pay taxes on the bookstore.

So, if I donate money to a church, is it tax-deductible?

Yes. Any donation to a non-profit that has tax-exempt status under 501(c)3 is tax deductible. Whether it's a church or museum or zoo doesn't matter. Just remember, this only applies to donations. If you buy a book at that bookstore we talked about, you still pay sales tax and the money you spend is not tax deductible.

What about the First Amendment, Great Tax G-ddess?

You're a curious little minion, aren't you? 501(c)3 doesn't violate the First Amendment for a few reasons. 1.) The religious groups don't get tax-exemption because they're religious, only because they're non-profit. 2.)501(c)3 doesn't make a distinction between different religions. 3.) The religious organizations have equal status with the nonreligious or secular organizations.

Well, little minion, any more questions?

No. Thank you, Great Tax G-ddess!

That sums it all up, I think. But if any of you minions out there in the blogosphere have questions, the Great Tax G-ddess has answers.