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7 Things to Know About Tax Exemptions in Santa Ana, CA

IRS and tax are among some of the scariest words. Dealing with taxation takes a lot of time, effort, documentation, and, of course, money. Even tax exemptions have a lot of rules that most people don’t fully understand. Gain tax exemptions require proper planning and knowledge. The good news is that certain types of businesses may be fully exempted from paying taxes. Here are 7 things to know about tax exemptions in Santa Ana, CA.

7 Things To Know About Tax Exemptions In Santa Ana, CA


1: There is Rarely a Blanket Exemption

Even if your organization qualifies for tax exemption (see later), it doesn’t necessarily mean blanket exemption. It means that you may still need to pay certain state and local taxes despite getting federal tax exemption. 

So, make sure to look for all applicable statutes related to taxation, and not only the IRS guidelines. 

2: You Cannot Distribute Profits

Normally, non-profit generating entities, such as churches are exempted from taxation. The organization needs to be registered for such purposes. At the same time, some profit generating organizations may also be eligible for tax exemptions. However, remember that any portion of the profit cannot be distributed to the owners/ shareholders. 

Distribution of profit straightaway indicated the commercial nature of business, making it eligible for taxation.

3: Tax Exemptions for Sole Proprietor

Simply put, a sole proprietor is never eligible for the tax-exempt status. What it means is that a separate legal business entity is required to be registered for this purpose.

4: Types of Tax-Exempt Organizations

The federal taxation system in the US allows the following type of organizations to register for tax exemption.

  1. “Not for Profit” organizations and entities, such as labor unions, hospitals, shelter homes and credit unions among several others. 

  2. Churches and other religious organizations.

  3. Organizations constituted purely for scientific research purposes.

  4. Organizations working for promotion of arts and history, such as art museums and historical societies. 

  5. Any association or organization having a minimum of 75% of its members as serving or retired military.

  6. Common interest organizations, such as the chambers of commerce.

  7. International organizations for social causes. 

  8. Public schools and other organizations working solely for educational purposes.

  9. Food banks, shelter homes and girls scout organizations.

  10. Agriculture or horticulture promotional organizations.

5: Taking Part in Politics

For any organization claiming for tax exemption, it is strictly prohibited to take part in politics. Any direct or indirect role towards shaping public policy would mean ineligibility for tax exemptions. 

Moreover, the IRS also prohibits any sort of political funding by these organizations for similar reasons.

6: Completing the Formal Process

The Internal Revenue Code Sec 501c3 allows such exemptions. You need to make an application for incorporation first of all. This is made to the office of Secretary of State along with all relevant details and documents. 

Get your Employer Identification Number and apply to the IRS for the exemption status. Make sure you have the right paperwork and accurate information while applying for the exemption.

7: Time Required for the Application Process

Normally, the IRS takes up to 180 days to decide on the status of your organization after formal application. If you still haven’t heard from them after 180 days, don’t be hesitant to contact the concerned office. However, remember that any error or misstatement on your application may cause the delay.

You may be asked to resubmit the application or certain documents for further processing. Hence, it is crucial to ensure error-free application in the best possible manner. Make sure your application presents a true and fair depiction of your organization’s operations.

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