Nonprofits are sometimes referred to as non-stock corporations, or 501(c)(3) organizations. While enjoying federal tax benefits on income, nonprofits typically must pay employment taxes for hired staff. Any profits generated by these organizations are not distributed to shareholders or owners. Additionally, nonprofits do not issue stock.
501(c)(3) Organizations
The 501(c)(3) is the best known of the types of non-profit organizations because it covers charitable organizations. Not only are there over 1 million charities in the U.S., but these types of non-profits contribute 75% of the $3.67 trillion reported in revenue and expenses for the whole non-profit sector. Public charities, foundations, social advocacy groups, and trade organizations are common types of nonprofit organizations.
It’s important not to confuse non-profit for non-valuable because these organizations do a massive amount of work in local communities and on the national scale. Within the 501(c)(3), there are five additional types of charities:
- Private foundations
- 509(a)(1)
- Religious
- Scientific
- Literary
Does your nonprofit meet the requirements of a 501(c)(3) organization?
The Most Common Type of Nonprofit
The most common nonprofit is a charity, which refers to an organization that operates to fulfill any of the following purposes:
- Religion
- Education
- Science
- Literature
- Public safety testing
- Amateur sports
- The prevention of cruelty to children or animals
Federal credit unions are an example of 501(c)1 organizations. A 501(c)1 organization is not required to apply for tax-exempt status or fill out annual tax returns because they were organized by Congress.