We often hear the terms “nonprofit” and “501(c)3” being used interchangeably leading one to believe that they mean the same thing….but they don’t.
Just because you’re a “nonprofit” does not mean that you automatically get a “501(c)3”, which makes you tax-exempt.
They’re completely different concepts, and it’s important that you know the differences.
Watch this video to learn more.
So, basically the main differences are:
It’s important that you know the differences so you can understand how you’ll want to run your nonprofit business.
So, let’s dive into more details…
The term “nonprofit” refers to an organization that exists solely to benefit society through charitable activities rather than provide financial benefit to a particular corporation, individual or entity.
Nonprofits can operate under different business formats depending on your state. Here’s a few examples of how you can set up your nonprofit:
These will vary depending on your state, but you can get the details on your options on your Secretary of State’s website.
Most nonprofits file as a “nonprofit corporation” which requires them to file “Articles of Incorporation” which is also required by the IRS to apply for 501(c)3 tax-exempt status.
The actual numbers and letter making up the term “501(c)3” refer to the specific tax-exemption status in the Internal Revenue Code.
Nonprofits have to apply for this and it’s bestowed upon your organization when the IRS determines that the nonprofit corporation meets specific requirements and shall NOT be subject to taxation because of the benefit it provides to society through its “exempt” or “charitable” activities.
The #1 advantage of obtaining a 501(c)3 for your nonprofit is the ability to offer tax-deductibility for donations from individuals and corporations, so any person or corporation who contributes to a 501(c)3 nonprofit may write off the amount of the donation from the “top line” of their income. This is incredibly attractive to donors, and, quite honestly, critical for running a successful nonprofit.
If you’d like to learn more about how to start a 501(c)3 nonprofit (and get a free ebook), then click here.
I hope this clarifies any questions about the differences and opportunities around a “nonprofit” and a “501(c)3 so you know what works best for you.
Cheers to your mission,
Jacqui Long | Yippiekiyay