Despite the name, a not-for-profit business can make profits. It is how those profits are distributed that differentiates a nonprofit business from a for-profit business. While it can be difficult to obtain and maintain tax-exempt nonprofit status, the benefits can be substantial.

Distribution of Profits

While for-profit businesses distribute their profits for the private benefit of owners and shareholders, a nonprofit must retain excess funds to benefit the organization, pursue its goals and serve the public good. Reasonable employee salaries are allowed.

Tax Benefits

A nonprofit corporation that meets requirements and obtains official tax-exempt status can be exempt from many state and federal taxes, although some taxes, such as employment taxes, still apply.

State and Federal Levels

Nonprofit corporations are first incorporated on the state level according to the state's specific bylaws and requirements. The corporation can then apply for federal tax-exempt status through the Internal Revenue Service.

Other Benefits

In addition to exemption from state and federal taxes, tax-exempt nonprofits can be eligible for reduced postal rates, retail discounts, and public and private grants. Tax-exempt nonprofits can also solicit tax-deductible donations and provide tax-deductible receipts.

Organizational Structure

Nonprofit corporations, including staff and volunteers, generally operate under a governing board that controls the overall direction and policies of the corporation, as authorized through the organization's Articles of Incorporation. Boards are typically comprised of a board chair, an executive director and board members who are sometimes organized into committees.

Restrictions

Nonprofits wanting to maintain tax-exempt status must adhere to certain requirements, such as restrictions on political campaigning and lobbying.

Source:

International Center for Not-For-Profit Law

Internal Revenue Service

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