A nonprofit organization is a business granted tax-exempt status by the Internal Revenue Service (IRS).  Non-profits pay no income tax on the donations they receive or on any money they earn through fundraising activities.  All of the money earned by or donated to a not-for-profit organization is used in pursuing the organization's objectives and keeping it running. Typically, not-for-profit organizations are charities or other types of public service organizations.  Donations made to a tax-exempt, not-for-profit organization may also be tax deductible for the donor.

 

     The term "non-profit" or "not-for-profit" misleads some people into thinking that a non-profit may not or does not earn money.  A non-profit corporation can, and many do, make money on many activities, from such classic fund-raising methods to subsidiary businesses like a retail store or publishing enterprise - the profits of which feed the coffers of the parent non-profit.  A non-profit's "profit" cash may not go to the people running the corporation that is considered a personal gain. That's the primary difference.  Cash certainly flows within a non-profit, though often in relatively small amounts.  A non-profit can have paid employees or it may reimburse its officers, directors, and members for authorized expenses incurred on its behalf.  Both employee salaries and volunteer reimbursements are part of corporate operating expenses; they are not profits shared with members of the corporation.

 

     Not-for-profit organizations do not pay sales tax or property taxes. For example, if a church is established as a not-for-profit organization, it does not pay property taxes on the house of worship it owns. Similarly, if a not-for-profit charity accepts clothing donations, sells the clothing and uses the money for its charitable purposes, it does not pay property tax on the building used as its store.

     The budget is a key component of keeping track of all funds circulating within the organization.  Any positive cash flow at the end of the year goes to forward the purposes of the organization. It may go into a land fund, be given to other charities that support the corporation's purposes, be set aside for next year's operating expenses, be set aside as cash reserves, but no "profit" goes to the people who run the organization.  (Unreimbursed expenses on behalf of a registered non-profit may be tax-deductible for the member who incurred them; a side benefit for some volunteers.)