Do nonprofits pay taxes in Texas?

The more knowledgeable Texas resident might know that nonprofits don’t have to pay taxes. While this is true, there are certain requirements that nonprofits have to meet, as well as other terms and conditions that apply.

Why don’t nonprofits have to pay taxes?

Nonprofits typically don’t have to pay federal income taxes. This is because nonprofits are (typically) organizations that exist for public and private interest with no interest in making a monetary profit for themselves beyond what is needed to run.

To qualify as a nonprofit in the eyes of the Internal Revenue Service (IRS), there are some conditions that nonprofits need to meet. This includes:

  • Operate exclusively for the charitable, scientific, religious, or public safety purpose for which it was organized
  • Collect income and turn over the entire amount (minus expenses) to organizations and/or individuals who are lawfully recognized as legitimate charities

Because of their tax status as a nonprofit, they’re more able to readily raise and distribute money. Nonprofits can also provide documentation to people who donate that the donor can then use to reduce their tax liability.

Are there other taxes nonprofits are exempt from?

In addition to federal taxes, nonprofits also don’t have to pay sales tax or property tax. This can make it easier to purchase and operate the property, as well as buy and/or sell items.

Nonprofits are still required to pay employee taxes though, such as social security and Medicare. And if they engage in activities that aren’t related to their purpose, they must pay income taxes on the money earned.

What are the other things to keep in mind about nonprofits?

Nonprofits usually have more oversight and stricter rules because of their special tax status. It’s important to keep extensive documentation and receipts to continue claiming all of the tax benefits from being a nonprofit.