What Is a Nonprofit?

What Is a Nonprofit?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A nonprofit is an organization that is dedicated to furthering a particular social cause or advocating for a shared point of view. In economic terms, it is an organization that uses its surplus of the revenues to further achieve its ultimate objective, rather than distributing its income to the organization’s leaders, members, directors, or shareholders. Nonprofits are tax exempt from many federal income taxes and operate in different sectors including education, research, health, and social services.

Related Questions

1. How is a nonprofit different from a profit organization?

Profit organizations aim to generate profit and distribute it to their owners or shareholders, which can be used or invested as they wish. Meanwhile, non-profits aim to generate revenue for the purpose of their mission, often related to a social cause, and use surplus income to further that mission.

2. Can nonprofits make a profit?

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Yes, nonprofits can make a profit. However, any profits made by a nonprofit organization must be used to further the organization’s goals, they cannot be distributed to members or leaders.

3. Do nonprofit organizations pay taxes?

Under typical circumstances, nonprofits are exempt from federal corporate income taxes. However, they may still have to pay other taxes, such as employment taxes, and are subject to specific regulations and requirements from the IRS.

4. How can a nonprofit organization lose its tax-exempt status?

A nonprofit organization can lose its tax-exempt status if it does not adhere to the regulations. This typically occurs if the nonprofit generates too much income from unrelated activities, engages in political campaigning, or profits are being used for personal gain.

5. What are common types of nonprofit organizations?

Common types of nonprofit organizations include charities, foundations, social advocacy groups, trade unions, and professional associations. Each serves a particular purpose and benefit the community in different ways.