In General: When a non-profit corporation is recognized by the IRS as a qualified 501(c)(3) public charity, the main benefit is that people who donate to the corporation are allowed to deduct their gift as a charitable deduction. Donors can still give their money to a corporation that does not have the 501(c)(3) exemption, but in theory that donation is NOT DEDUCTIBLE. So, having that exemption is important to a non-profit which wants to seek donations from donors who want that itemized deduction.

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New in 2018: Beginning in 2018, the tax law changes provided a much larger “standard deduction” that most people qualify for, and so fewer people will have the ability to itemize and deduct their charitable contributions. However, the people who will still benefit from having large deductions will be the rich people with large deductions, who will still likely want their charities to have that exemption. So it will continue to be an important goal for a small non-profit to have this exemption.

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Income Under $5,000/year: If you are a non-profit with annual “gross receipts” of less than $5,000 a year, then you are NOT REQUIRED to file for the exemption, and “Contributors' contributions to these types of organizations are tax deductible.” However, the IRS recommends that “small organizations seek IRS recognition because recognition assures contributors that contributions are deductible.” Source: https://www.irs.gov/charities-non-profits/charitable-organizations/organizations-not-required-to-file-form-1023

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Over $5,000 and Under $50,000: If your annual gross receipts are greater than $5,000 and less than $50,000 (and assets of $250,000 or less), you can apply for the IRS exemption using the shorter form 1023-EZ (Instructions * Info) with a quicker turnaround time. Once you have received your exemption, then there is also an annual filing requirement on a Form 990-EZ – a very simple one page form that can be filed online. Instructions 990-EZ * Form 990-EZ

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Over $50,000 Annual Gross Receipts: Now you are in the Big Leagues – and you have to play by all of the rules. To obtain the designation, you must file Form 1023 in full with all attachments. Once you obtain the exemption, then each year, even though you are a “non-profit” under state law, and a “public charity” under IRS rules, though you will typically not pay federal taxes (that is what “tax-exempt” means), you still have to file an informational return with the IRS. This annual reporting return is called a Form 990.

Instructions for Form 1023 * Form 1023 * Online 1023 * Instructions for Form 990 * Form 990