Do you have an article on the pros and cons of tax exemption? I’m thinking we would like to just incorporate with the state and not apply for tax exemption. I don’t like the restrictions on endorsements for tax exemption.
-Gretchen
Dear Gretchen,
Most homeschool groups apply for 501c3 tax exempt status as educational organization for the benefits it brings.
Main pros of 501c3 status are:
1. Tax exemption. Not paying federal or state income tax. Sometimes exempt on state sales tax and property tax too.
2. Can accept tax deductible donations
3. Discounts and some programs only available to 501c3s like Box Tops, TechSoup software, use of libraries, churches, etc.
Main cons are:
1. Time and money to apply and maintain tax exempt status (but paying taxes takes time and money too!)
2. No endorsement of candidates for public office
It’s this last issue that concerns Gretchen. She wants her homeschool group to be able to endorse political candidates. But endorsing political candidates is prohibited by 501c3 organizations.
501c3 nonprofits can lobby on behalf of legislation, but endorsing a candidate is not allowed. I for one would not want my local homeschool group to endorse a candidate. It can be too divisive. Of course, any member can endorse a candidate, just not the organization.
The reason for this restriction is so that tax deductible donations that the 501c3 nonprofit receives will not be used for political campaigns. The donations are to be used for the nonprofit’s mission, but not to bolster the coffers of a political candidate. Additionally, American taxpayers can contribute to a candidate, but the IRS does not think that entitles them to a tax deduction. I agree with this reasoning. I don’t think nonprofits with 501c3 status should be using their funds or time to support a political candidate.
Most homeschool organizations find they can live with this limitation and enjoy the benefits of 501c3 status.
Some state-wide homeschool groups have tax exempt status as 501c4 Public Benefit Organizations so that they can endorse homeschool friendly candidates. 501c4 Public Benefit Organizations can be politically active and endorse candidates, but contributions to a 501c4 Public Benefit Organizations are not tax deductible donations.
For more information on the advantages and disadvantages of 501c3 tax exempt status for homeschool groups, please read:
Start with Do we need 501c3 status?
My book The IRS and Your Homeschool Organization
