You hear all the time that the difference between for-profits and non-profits is the tax deductions. Let’s dig a little deeper. What is a Nonprofit? Before we delve into how nonprofit organizations differ from other businesses and entities from a tax standpoint, let’s first look at what a nonprofit is. First, nonprofits and not-for-profits are different. Nonprofit describes an organization that serves the public with its goods and services. But a not-for-profit can just serve a group of its members. According to Investopedia, 501(c)(3) nonprofit organizations are the most common. They are organizations that include “corporations, funds or foundations that operate for religious, charitable, scientific, literary or educational purposes.” 501(c)(3) organizations are split into two groups: public charities and private foundations. Public charities are what most people think if when they hear the word “nonprofit.” They are organizations that get their support (and income) from the general public and/or the government. Conversely, private foundations are created to help distribute money and resources (usually using grants) to help fulfill a public need. According to the IRS, there are several exempt organization types: Charitable organizations – “operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational or other specified purposes that meet certain requirements” Churches and religious organizations Private foundations Political organizations Other nonprofits Outside of 501(c)(3) classified organizations, there are several other special interest groups and businesses that fall under the nonprofit and not-for-profit umbrellas: 501(c)(4) – social welfare organizations, civic leagues, homeowners’ associations, volunteer fire departments 501(c)(5) – agricultural and horticultural organizations, labor organizations 501(c)(6) – business leagues (trade associations, chambers of …
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