Different Types of Nonprofit Organizations
Businesses are categorized for tax purposes, based on whether they operate for profit, or they as exist as a nonprofit entity. Within the latter grouping, there are many types nonprofits that are subject to varying tax rules, depending on the specifics of their organization.
Understanding Nonprofit vs. Profit
In order for an organization to fall into a nonprofit classification, it must operate and provide its services without the primary goal of making money. They make money but only to the end that they reasonable salaries to their employees engage in the range of operations as defined by their organization, and pay the expenses incurred for doing so. In general, they operate solely for the benefit of the public and not anyone directly associated with the organization.
Charitable Organizations are Tax Exempt
Under section 501 © of the IRS tax code, nonprofits operating as charitable organizations by providing services solely to benefit the public are exempt from paying federal income tax. There are 29 categories of organizations that fall under this section of code. Most frequently, people come into contact with organizations that are categorized as 501 ©(3) nonprofits. Nonprofit organization examples in this category include those that pursue charitable, religious or educational causes, scientific or literary functions, testing for public safety services, fostering national or international amateur sports competitions or working toward the preventional of cruelty to animals or children.
Public Charities and Private Foundations
As the largest category among nonprofit types, organizations designated at 501(c)(3) nonprofits divide into two segments. Public charities receive the funds from a large base of donors, including individuals, corporations and possibly governmental grants. Examples of this type include schools, hospitals, churches and charitable organizations that serve the public, perhaps through the support of the arts, funding medical research or championing human rights causes. Although they may support similar causes, the funds for private foundations come from private families, individuals or a corporation.
Business Improvement Organizations
Business organizations receive a break under section 501(c)(6) which allows for business leagues, chambers of commerce and real estate boards to receive a nonprofit tax exemption. A business league is an association of individuals engaged in the same profession or industry who seek to promote their industry or business interests in their community.