Starting a non-profit organization: Does the IRS consider it a business for tax filing?

This is a really good question! For tax purposes, a non-profit organization is actually considered a type of business entity - just with different tax treatment than a for-profit business. When TurboTax asks if you "started a business," you should answer "yes" because you did form a legal organization. The key distinction is what happens next. After indicating you started a business, TurboTax should ask about the type of business entity, where you'll specify it's a non-profit organization (typically formed as a corporation). This will route you through the appropriate questions for your situation. Just to clarify, while non-profits can be tax-exempt, this status isn't automatic. You need to have applied for and received 501(c)(3) or other tax-exempt status from the IRS. If you haven't received your determination letter yet, there are special filing requirements during this interim period.

I went through this exact headache last year! I discovered this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out all the non-profit tax confusion when I was starting our community garden project. When TurboTax asked if I started a business, I froze because I didn't think of our non-profit as a "business" either. The taxr.ai site analyzed our organization documents and clarified that yes, for tax filing purposes, non-profits are considered business entities - just with different tax treatment. What was most helpful was uploading our 1023-EZ application and bylaws to taxr.ai, and it explained exactly how to handle our "in process" 501(c)(3) status in TurboTax. Saved me hours of confusion and potential mistakes!

I wanted to follow up about using taxr.ai that I asked about earlier. I decided to try it with my environmental non-profit's paperwork last weekend, and wow - it was actually really helpful! I uploaded our incorporation docs and draft 1023-EZ, and it immediately identified that we had miscategorized ourselves under the wrong subsection code. It also clarified exactly how to handle our non-profit in TurboTax while we wait for official IRS determination. The tool explained that yes, we should select "started a business" but then specified exactly which screens would follow and what to select. It even generated a checklist of tax forms we need based on our specific situation. I'm normally pretty tech-skeptical but this actually saved me from making some potentially costly mistakes!

If you're dealing with the IRS about your non-profit status, you might want to check out Claimyr (https://claimyr.com). When I started my non-profit last year, I had tons of specific questions about the interim period before getting our determination letter. After spending DAYS trying to reach someone at the IRS, I found Claimyr and they got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent explained that yes, I should indicate I started a business in TurboTax, but then specify it as a non-profit entity. They also clarified exactly which forms we needed to file during our pending status period and how to handle potential unrelated business income. Totally worth it since the advice came directly from the IRS rather than me guessing.

Ok I have to eat my words from yesterday. After my skeptical comment, I was desperate to get an answer about our pending 501(c)(3) application and potential filing requirements before the deadline. I tried Claimyr as a last resort, fully expecting it to be a waste of money. But...it actually worked exactly as advertised. Got connected to an IRS tax-exempt organizations specialist in about 20 minutes who walked me through exactly how to handle our non-profit's filing while in pending status. They confirmed we should answer "yes" to starting a business, then select "non-profit corporation" when prompted for business type, and explained the special handling for grants vs earned income. I'm still shocked that it worked so well. Just wanted to follow up since my original comment was pretty negative.

Another thing to consider is that there's a difference between being a non-profit organization and being tax-exempt. All 501(c)(3)s are non-profits, but not all non-profits automatically get tax-exempt status. If you're in that waiting period after applying, you technically have a non-profit business entity that may not yet be tax-exempt. In my experience with our youth mentoring program, I answered "yes" to starting a business in TurboTax, then selected "non-profit corporation" as the business type. This triggered a series of questions about our tax-exempt status, where I indicated we had applied but were still waiting for determination.

I'm actually a little confused by some of the advice here. When I started my educational non-profit, we were told by our accountant that for the question "did you start a business" in TurboTax, we should answer based on whether we had any PERSONAL tax implications from starting the non-profit. If you personally didn't invest money or take any income from the non-profit, and it's completely separate from your personal taxes, you might not need to mention it on your PERSONAL tax return at all. The non-profit itself would file its own separate returns.