Can a Non Profit Make Too Much Money?

There is no set limit on the amount of money a nonprofit organization can earn. Nonprofits should set aside at least 3-6 months of operating costs in reserve funds and keep the funds in reserve. The Pension Protection Act of 2006 provides for automatic revocation of an organization’s tax-exempt status if it fails to file a required annual information return for three consecutive years. Nonprofit founders are not permitted to make a profit or benefit from the net earnings of the organization.

Nonprofits can safely make a profit if its primary purpose is to advance its mission, but income from some activities may be taxed. Larger nonprofits with a broader mission and wider reach tend to have access to more resources and funding opportunities. Harvard had $34 billion banked away. Profits are the revenue left after expenses. Nonprofits can keep profits as long as they’re used appropriately. Charity leaders should decide what profit is suitable, considering objectives and size. Earned income from products or services can provide significant funding. Nonprofits shouldn’t hold excessive reserves without purpose as it may deter donors.

When a nonprofit makes excess funds, they should go into reserves against future shortfalls. Nonprofits aren’t taxed for large reserves if the money is used properly. But they should avoid excessive reserves without purpose.