So, are you planning on donating to a non-profit organization? Do you want to know more about a non-profit organization before you donate? Then, you have come to the right place. This post will help you understand what a non-profit organization is.

A non-profit organization is quite similar to any business, but it enjoys tax-exempt status by the IRS (Internal Revenue Service) because it is established for furthering a social cause and benefiting the public. Donations that are made to non-profit organizations tend to be tax-deductible for both businesses and individuals.

The non-profit organization does not have to pay tax on the donations it receives and nor does it have to pay tax on the money that is generated through fundraising activities. It is often called an NPO.

Qualifications for NPO Status

Not just every organization can become an NPO. There are certain qualifications that the organization has to meet to benefit from the tax-exempt status. Normally, NPOs are established to further public safety, literary, education, charitable, scientific and religious purposes. Some examples of non-profit organizations include mosques, churches, synagogues, temples, foundations, charities, universities and hospitals. The Salvation Army Houston is an NPO that strives to serve humanity based on the Gospel.

The NPO has to serve the public in some way. It could either be by offering the public services, good or a combination of them both. Moreover, it is also required to make operating and financial public so that donors can stay informed regarding how and where their contributions are used. NPOs might also exist to collect income for dispensing donations to different charities.

In the United States, NPOs need to request for NPO status from the IRS under 501 (C) (3). Once an organization is registered as an NPO, it has to maintain compliance. Organizations need to explicitly state that they would not engage in any political campaign or make expenditures for political purposes.

Operating Rules for NPO Status

Although some non-profit organizations use only volunteer labor, most large NPOs hire paid, full-time staff. Despite benefiting from exempt-tax, NPOs need to pay employment tax and abide by federal and state workplace rules just like for-profit organizations.

NPOs are allowed to provide income or assets to individuals as fair compensation. The organization has to explicitly state that it would not use the donations for personal benefit or gain in the organizing papers.

Non-Profit Vs. Not-For-profit

Most of the time, the terms not-for-profit organizations and non-profit organizations are used interchangeably. However, there are certain distinctions between these two. The main difference is their purpose. Non-profits need to offer some goods or services and some social benefits. On the other hand, not-for-profits do not require a similar orientation and can exist simply to serve membership to certain members of society, rather than the society as a whole. NFPOs tend to sports clubs or recreational centers. While on the other hand, NPOs are solely operated for educational, literary, scientific, charitable and religious purposes.