When it comes to federal tax designations, there is a lot of confusing languages and codes. For charities, there are a few important designations that exist, and one of these is the 501(c)(3) label. This code is thrown around often when discussing charitable organizations, but what does it really mean? It might sound like government jargon, but there is a specific set of requirements that must be met to earn a 501(c)(3) designation. In this article, we will dive into what makes an organization a 501(c)(3) so you can donate with confidence.
501(c)(3) refers to an Internal Revenue Service (IRS) designation granted to charitable, not-for-profit organizations. Not-for-profit (or nonprofit) means that the organization, and by extension, the employees of the organization, are not earning money from donations towards the charity. This distinction grants tax exemption and certifies that the organization is entirely nonprofit and dedicated to a charitable or benevolent cause. Essentially, having a 501(c)(3) designation simply means that the IRS has approved that organization as tax-exempt and charitable.
There are several types of organizations that can receive a 501(c)(3) designation. Some examples of these include charities, churches and religious organizations, private foundations, and even political organizations. There are other types of organizations that may be eligible for the 501(c)(3) distinction, but those are the most common types.
While many 501(c)(3) organizations will make it known that they carry this classification, you can actually check for yourself by using a tool embedded in the IRS' website. Using this tool, you can check if an organization is a 501(c)(3) by providing some basic information. The IRS maintains an updated registry of all 501(c)(3) organizations, so if they do not appear on this search list, they are not officially registered as a 501(c)(3). Be very wary of any business that claims to be a nonprofit 501(c)(3) but does not appear on the IRS' registry.
There are many reasons why you should donate to a 501(c)(3) charity. First and foremost, by donating to a charity of this nature, you are able to make a very direct impact on the cause they support. In the process, you will likely also be able to learn more about the issue, as most 501(c)(3) charities are very knowledgeable and passionate about their cause. Additionally, when you donate to a 501(c)(3) organization, you can rest assured that 100% of your money is going to charity. Since 501(c)(3) organizations are not-for-profit, none of your money will be spent maintaining an office, paying salaries, or going anywhere else other than the charitable cause. It is one of the most safe and transparent ways to donate, and often you can see exactly how your money will be making an impact.
Because 501(c)(3) organizations have this special distinction, any and all donations you give to them are tax deductible. Donating to a 501(c)(3) makes you eligible to file a Class A form with the IRS when tax season rolls around. You will receive a tax write-off for the donation, which can then be applied towards your own personal taxes. This is not the case when donating to any charity, as you do not always receive a tax write-off for any donation. However, if you choose to donate to a 501(c)(3), you will receive a tax deduction. In many cases, the charity may even be willing to help you write up and file the paperwork for your deduction.
Hopefully you now have a better understanding of what qualifies an organization for 501(c)(3) status. When choosing a charity, always look for a 501(c)(3) organization. This ensures that your money is going to a reputable organization that cares about the causes they represent. Donating to a 501(c)(3) is an excellent way to have a direct impact on your community, and with the many tools that now exist, it is easier than ever to find a reputable 501(c)(3) charity for just about any cause that's important to you.