The Different Types of 501(c)(3) Nonprofits

Are you thinking of starting a nonprofit? We can help you determine if it qualifies as a nonprofit. A for-profit organization is responsible for paying taxes to federal, state and local governments. A non-profit organization is tax-exempt.

How to know if your organization qualifies as a non-profit organization:

• No private shareholder or individual can see a benefit from your organization’s earnings.

• Your organization does not actively campaign for political candidates.

• Your business is organized or operated exclusively for one of these purposes:

  Religious, Charitable, Scientific, Testing for public safety, Educational, Amateur sports competition, Animal and children cruelty prevention, Literary

501(c)(3) classifies organizations into three distinct categories:

• Public Charity: This is the most common form of 501(c)(3). It is also what most people generally associate with the term “non-profit.” Public charities are eligible to receive tax-deductible donations from individuals (up to 50% of the donor’s income) and corporations (up to 10% of the organization’s revenue), and are governed by a board of directors. No more than 50% of the board can be related to each other. Groups that fall into the public charity category include churches, animal welfare agencies, educational organizations and more.

• Private Foundation: A private foundation, which can also be referred to as a non-operating foundation, does not have active programs . Its revenue may come from a small group of donors or even an individual or family. Private foundations are sometimes established to grant money to other non-profit organizations or individuals working on the same exempt purpose of the foundation. A “family” foundation is a common type of private foundation. Donations to 501(c)(3)-recognized private foundations are still tax-deductible for individuals (up to 30% of the donor’s income).

• Private Operating Foundation:  Private operating foundations are similar to private foundations, but also have active programs like those found in a public charity. IRS regulations on private operating foundations are similar to those on private foundations. Many consider these foundations a hybrid between public charities and private foundations. Donations are still tax-deductible, just like a public charity.

Every successful non-profit organization has their finances in order. We offer non-profit bookkeeping to help you stay on track. Get a free estimate.