A nonprofit organization (NPO) does not pay taxes on earnings or donations used to run the business. The IRS grants NPOs a tax exemption status because they provide a social benefit. Those who make donations to an NPO, whether that be from individuals or other businesses, are able to take tax deductions on the donations. NPOs are also called 501(c)(3) organizations, after the section of the tax code that grants them tax-exempt status.
To qualify as an NPO, a business must serve the public. This can be through a service or the sale of products (or both). Financial information about the company must be made public. This allows donors to make informed decisions about whether to contribute money to the organization’s cause or not.