The word Not-For-Profit often rings a bell in the ear and suspicion in mind regarding their mode of operation and revenue model. A lot of these curiosities stem from the fact that a lack of awareness is there regarding Not-For-Profit entities. There is a whole range of these entities, serving specific purposes and bound by regulations. Like any other entity, it is under the purview of regular audit and scrutiny from authorities and has liabilities to the cause/people they serve. In a broader term, Not-For-Profit entities encompass a vast range of organizations - from charities to political organizations. Let’s go through a better understanding of the same.
No-For-Profit entities are broken down as per classifications and might or might not be taxed based on their operation. The lack of awareness surrounding the not-for-profit organizations though restrict potential donors to take full advantage of tax exemptions and deductions and also making a contribution towards a social cause. Here is the lowdown of the various forms of not-for-profit organizations for a better understanding of the entities and the purpose they serve in the society at large.
501(C)(3) Entity - The charitable entities
This classification broadly refers to entities servicing public cause. On a broader scale the entities which are religious, educational, charitable or even literary concerned, are deemed to be under the 501(C)(3) entity. The definition and inclusion in this category are not limited to the above-said but also encompasses public safety, promotion of international events like sports, animal cruelty prevention and even child manipulation resistance. One of the key attributes under this classification is that these entities can not lobby for the political assertion. Most importantly the mode of operation of these entities is not personal profit generation. While staffs get a regular wage, these entities are not taxable. In fact, the donors can have applied for a tax deduction for their donations - a prime driving force behind the success of these entities.
501(C)(4) Entity
This classification encompasses the means and traits of the (C)(3) variation but has more flexibility in terms of operations and most importantly have to veto power in political scenarios. These organizations take forward common ideologies and are eligible for taxation in some parts.
527 Entities
The 527 entities are out and out political entities but not aligned with any specific party or candidates. They don’t have to veto power to sway popular intentions and don’t have the rights to contribute to federal campaigns. Entities like Swift Boat Veterans for Truth are prime examples of this kind of entities. They are exempt from the regulations pertaining to political spending.
501(C)(6) Entity
This entities are professional organizations but are not targeted to profit generation. Chambers of commerce, trade boards, business associations are prime examples of this kind of entities. They serve the common purpose of aiding business growth and look after the well being of specific industries. One of the key points of these entities is that the fees asked by these entities are not taxed but donations are not tax-deductible. What that means donors cannot apply for tax donations made to the 501(C)(6) entities.
Business vs Non-Profit Organizations: What's the difference?
The difference between business and not-for-profit organizations is quite obvious - the profit-making model. Businesses are fostered for gaining profit while not-for-profit organizations are not operated with that objective in mind. Even though the base object is different, there are some common points among these two as well. Like businesses medium to large not-for-profit entities do employ full time paid staffs other than the obvious volunteers. Also, the range of operations for not-for-profit organizations is much limited than businesses.
Are Not-For-Profit Entities Taxed?
While not-for-profits often work on a large scale and even at the time larger scale than many big businesses, their operational motive is social uplifting, through charity, education, scientific investments and others. In that parlance, their entities are largely tax-exempt. In fact, the donations made to these entities are eligible for tax deductions for the donors. This is one of the primary reasons why donors contribute generously and more regularly to not-for-profit entities even when some businesses are also working in the same genre of services.
