Differences Between a Nonprofit and a Charity
Have you ever wondered what the difference was between a Nonprofit and a charity? Are all Nonprofits considered charities? Are all charities not-for-profit, or are there for-profit charities? We are here to help break down the differences on charities vs. Nonprofits so you can have a better understanding of both.
A Nonprofit corporation is an organization with a purpose of something other than making a profit. A Nonprofit donates its revenue to achieving a specific goal that benefits the public, instead of distributing it to shareholders. There are over 1.5 million Nonprofit organizations registered in the U.S.
But being a Nonprofit does not mean the organization won’t make a profit at all. Nonprofits can make money — it’s just that all of the money must go back into the organization by paying employee salaries, administrative expenses and other overhead costs. No one person or group owns a Nonprofit. Assets from a Nonprofit can be sold, but the revenue must benefit the whole organization rather than individuals.
Below are some examples of Nonprofits:
- Homeowners’ associations
- Local clubs
- Amateur sports teams
- Animal organizations
You can view a comprehensive list of Nonprofits here for more examples.
A charity is a Nonprofit whose purpose is to benefit the general public in a philanthropic way — aiming to improve the lives of individuals or a community. A charity is typically a type of Nonprofit organization, but it’s not the only type. Also, charities are usually Nonprofits, though not all Nonprofits are charities.
Charities and foundations, also known as 501(c)(3)s, are granted federal tax exemption by the Internal Revenue Service (IRS) based on its recognition of charitable programs. However, even though charities and foundations are Nonprofits, not all tax-exempt organizations are charities.
Charities typically provide inexpensive or free services to the public using funds received from donations through fundraising events specifically designed to solicit members or advocates of the organization.
Below are some examples of organizations that generally fall under a charitable definition:
- Churches or associations of churches
- Educational organizations
- Hospitals and medical research organizations
- Organizations that provide support for state colleges or universities
- Governmental units
- Relief efforts (short-term or long-term)
For more examples, you can view a comprehensive list of charities here.
A charity is eligible to apply for 501(c)(3) tax-exempt status because of its charitable purpose, and it may be exempt from state and local taxes as well. These charities are also able to receive tax-deductible donations.
According to an article on Score.org, “If the nonprofit’s purpose is educational, religious, provides funds or services to help support medical research, or promotes a cause that in some way could benefit the general public, 99 percent of the time, that entity is known as a charity.”
Incfile can quickly and easily assist you with your Nonprofit needs, including providing you with information on the steps you need to take to file for exempt tax status, as well as how to form your Nonprofit.