There are over 1.6 million nonprofit organizations categorized as tax-exempt by the IRS in the United States. Public charities, foundations, social advocacy groups, and trade organizations are common types. Any profits generated by these organizations are not distributed. Additionally, nonprofits do not issue stock.
Tax Status and Exemptions
While enjoying federal tax benefits on income, nonprofits typically must pay employment taxes for hired staff. The federal tax code recognizes over 30 types of nonprofits. Some nonprofits are either fully or partially tax-exempt. Also, some types can accept contributions from donors.
Nonprofits are separate legal entities from their incorporators and employees. They are usually managed by their board of directors or members and must be formed according to their state’s rules.
Nonprofits are exempt from federal income tax under Section 501(c)(3) if they meet requirements. Each type serves a purpose and addresses different issues.
Operating Differences and Funding
Understanding the categories can help individuals and organizations navigate more effectively. Nonprofits rely on donations to fund activities. There are five categories of nonprofits, but dozens of tax-exempt statuses. The common thread is that a nonprofit cannot pay profits to individuals or shareholders. A nonprofit is different from a non-government organization which operates beyond the US borders.
What is the difference between a 501(c)(3) and a 501(c)(8)?