501c7 social clubs meet the Internal Revenue Service criteria for tax exempt status under code 501c7.
According to IRC 501c7, they must be organized for ‘pleasure, recreation and other nonprofitable purposes.’
These clubs help people pursue a common passion by pooling their resources together. Given below are some benefits of 501c7 social clubs.
They Are Exempt From Federal Income Taxes
Social clubs are exempt from federal income taxes if they meet the requirements laid down by the IRS.
Given below are the requirements for 501c7 social clubsto qualify for the tax exempt status,
- The club must be organized for recreation, pleasure or other nonprofitable purposes.
- The members of the club must be provided with opportunities to communicate and engage with each other through personal contact. The club must also have limited membership.
- No individual or private shareholder should benefit from the club’s net earnings.
- The club is not allowed to offer recreational services on a commercial basis or to people who are not members.
- It must not provide goods or services to the general public.
- Expenses of the club must be paid by membership dues, fees and assessments.
- Majority of the club’s activities must be carried out to further its exempt purpose.
Nonprofit social clubs enjoy many tax benefits. While for-profit clubs are required to pay taxes when they raise membership dues or plan on making renovations or repairs, nonprofit clubs usually avoid these kinds of taxes. Only passive income like dividends or rents are taxable.
Allows People To Participate In Recreational Activities
- Gives people opportunities to learn new skills or develop their existing skills. Social clubs allow people to pursue their interests whether it is sports, music, dance, cooking, reading or community service.
- They teach people how to work in a team and effectively communicate with one another. Since all the members are aiming to achieve the same purpose, they will learn to cooperate with one another.
- If you don’t have lots of friends or know people who share the same interests as you do, social clubs are a great way to meet new people. It is also easy to connect with people since they share the same interests.
- If you join a social club which is related to the career you want to pursue, you will learn skills which will help you prepare for your career. For example, if you want to be a chef, a cooking club will help you hone your cooking skills.
- Social clubs can encourage people to take care of their physical health. Fitness clubs organize many activities for their members which encourage them to be active and remain fit.
No Discrimination Based On Race, Sex or Religion
501c7 social clubs are prohibited from making policies which discriminate people on the basis of race, sex or religion. Unless the club is specifically meant for a sex or religion, discrimination is strictly prohibited and doing so will invalidate the club’s tax-exempt status.
Certain clubs can limit their membership to people of a certain religion if the purpose of the club is to further the principles and teachings of the religion. If a club is organized specially for a certain sex, for example a women’s soccer club, membership can be limited to only women.
Improvement Of Community
Although membership dues are the main source of income for social clubs, 35% of the club’s income can come from non-member sources.
Social clubs can use this opportunity to generate funds for community related projects aimed at improvement of the community.
Make sure your organization meets all the requirements for a 501c7 social club before applying for the 501c7 status. A lawyer who specializes in nonprofits will help you fill the necessary documents required for tax exemption.