What really is a non-profit organization?  Can they make a profit?  Are donations to them always tax deductible?

Most non-profits are what the IRS terms “tax exempt organizations”.  The most common type of tax exempt organization is a charitable organization under Section 501(c)(3).  This is the most beneficial exempt status to be granted because you not only pay no tax on your net income (with some exceptions of course), but donations to the organization are tax deductible by the donor.

Other fairly common types of tax exempt organizations are Business Leagues / Trade Associations that are tax-exempt under Section 501(c)(6) and Civic Leagues and Social Welfare Organizations that are exempt under Section 501(c)(4).  There are several other less common types of exempt organizations as well.  Generally, all of these organizations do not pay tax on their net income (again, with some exceptions), however, donors don’t receive a tax deduction for donating to them.

Contradictory to its name, there is no limit on the profit a non-profit can make.  However, they can’t pay it out to shareholders like a for-profit corporation since there are none.

Contact us for additional information on Boyum Barenscheer’s nonprofit services.