A nonprofit is an organization, also called an NPO, that doesn’t pay taxes on its earnings. The IRS has granted the nonprofit a tax-exempt status because it both furthers a social cause and benefits society. Some nonprofits take in donations to help further their cause. Individuals and businesses donating to a nonprofit do not have to pay taxes on those donations. Financial documents of a nonprofit must be made public so donors can see how money is being used by the organization.
The technical IRS tax code name for a nonprofit is a 501(c)(3). 501(c)(3) status must be requested for the organization to receive its tax-exemption. Additionally, the organization has to maintain compliance through its state.
Some popular NPOs include The American Red Cross, Feeding America, The Salvation Army, UNICEF, Habitat For Humanity, The United Way, and the Bill And Melinda Gates Foundation.
An NPO will generally focus on a particular area that can benefit society. These areas of focus are also called the missions. For example, some missions fall under religion, science, charitable giving, education, literacy, public safety, and cruelty prevention. As you can see, the furthering of religious topics can be done by NPOs, commonly called churches.
In the United States, California has the highest number of non profits, followed by Texas, Florida, and New York. Although when considering the number of non profits per 1,000 people, Montana and Vermont rank at the top.
Do non profits ever make a profit? Yes. They can have profits in related and unrelated activities. Profits from unrelated activities may be taxed. Profits go back into the organization to serve its mission. Unlike a for-profit company, most NPOs don’t pay exorbitant salaries to their staff or executives. They also don’t pay dividends. NPOs don’t generate profits for shareholders or owners either.