Business & Work

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The Big Picture

A nonprofit is an organization created for a purpose other than making money.

The goal of any nonprofit is to address a concern or provide a service without looking for a profit…

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In this article, we will focus on applying for tax-exempt status for 501(c)(3) organizations in Illinois. This includes income, sales, and real estate taxes.

This article does not address the ongoing reporting requirements for tax-exempt organizations or registering your entity with the Illinois Attorney General's office.

Nonprofits and taxes

501(c)(3)s do not have to pay federal and state income tax.

But they do have to pay:

• Employment taxes on wages paid to employees, and
• Taxes on money received from an unrelated business activity.

A 501(c)(3) operating in Illinois may not have to pay Illinois sales tax, and it may be exempt from real estate taxes on property it owns.

Both the Illinois sales tax and property tax exemptions are not automatic based on the 501(c)(3)'s income tax-exempt status. You must apply for both additional exemptions separately.

Donations to certain nonprofit organizations may also be tax deductible for the person making the donation.

Note: Net earnings of a 501(c)(3) cannot go to a person. This could lead to losing your status and paying fines to the IRS.

Applying for 501(c)(3) status for your nonprofit

After you have created your nonprofit, the steps below will help you apply for tax-exempt status.