Types of Nonprofit Organizations
Nonprofits, also known as non-stock corporations or 501(c)(3) organizations, are entities that use their surplus revenues to achieve their goals rather than distributing them as profit or dividends. They do not issue stock and must pay employment taxes for hired staff despite enjoying federal tax benefits on income.
The most common types of nonprofit organizations include:
- Public charities
- Foundations
- Social advocacy groups
- Trade organizations
These nonprofits account for a significant portion of the sector’s revenue and expenses, with over 1 million charities contributing 75% of the $3.67 trillion reported.
Within the 501(c)(3) category, there are distinct types of charities, such as:
- Private foundations
- 509(a)(1) organizations
- Religious entities
- Scientific and literary organizations
Charities are common nonprofits and encompass a range of purposes, including:
- Religion
- Education
- Science
- Literature
- Public safety testing
- Amateur sports
- Prevention of cruelty to children or animals
Classification and Tax-Exemption
Federal credit unions are examples of 501(c)1 organizations, which do not need to apply for tax-exempt status or submit annual tax returns as they were assembled by Congress.
The U.S. has over 1.6 million tax-exempt nonprofits, reflecting the diverse needs of society. Nonprofits are designated as separate legal entities and are usually governed by a board or members. They must adhere to specific state formation rules and can have varying levels of tax-exempt status.
Some nonprofits have the ability to receive tax-deductible donations, while all are prohibited from distributing profits to individuals or shareholders. It is important for anyone looking to establish a nonprofit to understand the different categories and related legal requirements, as support for each is available.
IRS Tax-Exempt Categories
There are numerous tax-exempt statuses spread across five categories of nonprofits, which include organizations that cannot remunerate profits to individuals or shareholders. Internationally operating non-government organizations are differentiated from 501(c)(3) entities.
To maintain income tax exemption, nonprofits must meet specific IRS requirements, and each type serves a distinct societal need. Nonprofits are generally financed by donations, which are essential for funding their activities.