A nonprofit corporation means that none of the corporation’s net profit comes from donations, membership fees, or any business activities that will benefit any individual. Some of the many different types of nonprofit organizations are: homeownership associations, clubs, and other various organizations are nonprofits. Often times, these types of organizations are mutual benefit nonprofit corporations because they do not benefit the general public. Nonprofits that do however, benefit the general public are typically known as the best type of nonprofit called charities.
A charity is a nonprofit whose purpose is to, in any way, benefit the general public. The goal of a charity is to improve the quality of life for the community as a whole. Charitable organizations include:
- Churches or Church associations
- Educational purposes
- Hospital and medical research
- State college support or universities
- Governmental units of the U.S.
This is an example of a technical character difference that separates charities from other forms of nonprofits and it is what kind of tax returns a charity is required to file. Because of a charity’s charitable purpose, it is allowed to apply for 501c3 tax-exempt. Charities may also exempt from state and local taxes as well. These charities listed above, are also able to receive tax-deductible donations. When it comes to filling out taxes, these are the options for charities:
- Form 990, a Return of Organization Exempt from Income tax form
- Form 990-EZ, Short Form Return of Organization Exempt from Income tax form
- Form 990-N, the Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required to file form 990 or 990-EZ
All across the country there are hundreds of thousands of nonprofits and many different kinds. A charity is one type of nonprofit that is determined by many factors. The rule of thumb when deciding whether the nonprofit is a charity is if it earns more than a third of its income via public solicitation. Usually, if the nonprofit follows that rule, it will be deemed by the IRS as a charity. However there is an exception to that rule. Most states will require nonprofits to register as a charity if any public solicitation is performed by the organization. Defining the actual measure that decides if a nonprofit is a charity is tricky but can most often be determined by the organization’s purpose. If the nonprofit’s purpose is educational, religious, provides funds or services to help support medical research or any of the mentioned above, 99 percent of the time, that entity is known as a charity.