Social welfare organizations

What are the differences between welfare organizations and charities? | Small business

To start a nonprofit organization and be recognized as a tax-exempt entity by the IRS, you will first need to determine which designation applies to you. The different types of nonprofits identified as 501 (c) organizations by government, welfare organizations, and charities appear, at first glance, to have similar functions. However, the latter is a 501 (c) (3) entity in this context, while the former is a 501 (c) (4) entity. Although they share a tax-exempt status, several characteristics differentiate the two types of organizations.

Structure and types

Charities recognized by the IRS as 501 (c) (3) organizations tend to be either public charities or private foundations. The former may be churches, hospitals or medical research institutes which receive funds from many sources and collaborate with other charitable organizations. Private foundations usually have a single source of funding and focus on providing grants to groups and individuals, rather than spearheading social programs. Social welfare organizations, which, along with local employee associations, include 501 (c) (4) organizations. They can take the form of civic leagues exclusively dedicated to the promotion of social action, in addition to associations of exempt owners and volunteer firefighters. Charitable organizations include religious, scientific, educational, literary organizations, and those that promote a cause, such as raising awareness of poverty.

Political activity

Charities are not allowed to be “action organizations” that seek to influence legislation or participate in political campaigns. Extensive lobbying can prevent charities from functioning as such. If you lose your charity status then you cannot apply to become a welfare organization which gives you more leeway to lobby and conduct political activities as part of their business. Politically active pressure groups are sometimes referred to as welfare organizations.

Tax exemption

Tax exemption is one of the distinguishing features of charities and social protection organizations. In order to qualify and maintain your status, income from either type of organization may not benefit an individual or a private interest, and if it does, it may result in the imposition of an excise tax. An organization must apply for tax exempt status as a 501 (c) (3) or 501 (c) (4) organization before it is officially recognized as such. For the former, you can use application form 1023; for the latter, submit Form 1024. After approval, both types of organizations may still be required to file an annual return with the IRS and pay unrelated business tax and employment tax.

Donation exemption

As a non-profit organization, you may be tax exempt, but your donors may not. Donations to charitable organizations will be tax deductible under IRS Code 170, but the amount that can be deducted depends on whether the donor is an individual or a corporation, in addition to the type of foundation status of the organization. charity. Thus, an individual who donates to a private charity will deduct less than for a public foundation; a corporation can deduct all charitable contributions up to 10 percent of taxable income. Donations from social welfare organizations do not qualify for tax deductions, although they can be claimed as a business expense. Nonetheless, donations to volunteer firefighters and veterans groups may be tax deductible.