What are nonprofit organizations?
Formal organizations in the United States are typically thought about in three broad categories:a) Business and industry, or "for-profit" organizations;b) Government, including state, local, and federal agencies that provide services and regulation;c) Nonprofit organizations, that qualify for tax-exempt status under the Internal Revenue Code because they are organized for the specific purposes stated in the Code. Although there are legal distinctions among nonprofit organizations and different reporting requirements, all are exempt from paying federal income taxes. About half of nonprofits - called charitable organizations - are exempt under Section 501(c)(3). This status permits donations to charities to be tax-deductible to the donor.
Are all nonprofit organizations public charities?
Public charities represent a substantial portion of the nonprofit sector, but not all nonprofit organizations are public charities. Public charities receive their tax-exemption under subsection (3) of Section 501(c). This privileged status allows donors to make tax-deductible contributions to the organization. The IRS defines these organizations as "charitable" because they serve broad public purposes, including educational, religious, scientific, and the literary activities, among others, as well as the relief of poverty and other public benefit actions.
Private foundations are also charitable organizations exempt under Section 501(c)(3), but are not public charities. Most private foundations are created to distribute money to public charities or individuals. They must meet strict guidelines requiring distribution of a proportion of their assets each year.
Other types of tax-exempt organizations include social welfare organizations (501(c)(4)), labor and agricultural associations (501(c)(5)), business leagues (501(c)(6)), and fraternal beneficiary societies (501(c)(8)).
What is the difference between a "nonprofit" and a "not-for-profit" organization?
There is no legal distinction and the terms are often used interchangeably.
How do nonprofit organizations differ from for-profit organizations?
Generally, the purposes of nonprofit organizations and for-profit organizations differ and the purpose of a nonprofit forms the basis of its formal exemption from paying federal income taxes. Additionally, unlike for-profit organizations, most nonprofit organizations are legally constrained from distributing residual earnings to individuals who exercise control over the firm, such as officers, directors, or members. Nonprofit organizations are not prohibited from earning profits or paying reasonable compensation to employees, but they must devote any surplus to the continuing operation of the organization or distribute it to non controlling persons.
Which nonprofit organizations are required to file with the IRS? Do they file the Form 990, 990-EZ, or 990-PF?
There is a difference between registration and filing. Tax-exempt organizations with more than $5,000 in annual gross receipts must register with the IRS, but they don't have to file the annual information report until they reach annual gross receipts of $25,000. Religious congregations have automatic Section 501(c)(3) status and are not required to register or file. Foundations of any size must register and file.
Nonprofit organizations with over $25,000 in annual gross receipts are required to file Form 990 with the IRS. Organizations that have gross receipts between $50,000 and $100,000 and less than $250,000 in total assets at the end of the year can opt to file a shorter form called Form 990-EZ. Private foundations of any size file Form 990-PF. Since some funders require Form 990, some smaller nonprofit organizations do file Form 990 even though they are not required to do so by the IRS.
Do nonprofit organizations qualify for Specialized Tax Incentives?
Without going into the hundreds of nuances individual nonprofit organizations may have, the answer to this boils down to one simple question, "Does the organization pay taxes?" If the answer to this question is, "Yes." Then it is worth taking a look at Specialized Tax Incentives for them.