What is a nonprofit?
Nonprofit - a term that can mean various things to different people; an organization that does good; an organization that doesn’t make money; or an organization staffed with only volunteers (common misconception - check out this blog to prove it!). However, a nonprofit organization is really just like a business in that they are both create value for others, solve problems, and have customers (or clients or donors in the nonprofit sector). Officially, the Internal Revenue Service (IRS) identifies a nonprofit organization as a legal entity organized and operated for a collective, public, or social benefit.
Tax-exempt status
Nonprofit organizations do not operate to make a profit and work to provide social benefits. Nonprofits also serve a charitable purpose which is why most are tax-exempt. Although they have different meanings, people tend to use the words nonprofit and tax-exempt interchangeably. According to the IRS’s tax code, incorporating as a nonprofit does not automatically result in tax exemption status. Therefore, not all nonprofits are tax-exempt organizations.
Congress has created nearly three dozen types of tax-exempt organizations in different sections of the tax code. When it comes to nonprofits, 501(c)(3) is a common phrase. A 501(c)(3) nonprofit organization is typically created for religious, charitable, education, scientific, or educational intent. Donations to 501(c)(3) organizations are tax-deductible, which is a great benefit to nonprofit donors. 501(c)(3) nonprofit organizations are the most recognized tax-exempt organization.
Take a look at the chart below for more exempt organization types.
Why is it important to understand what a nonprofit organization is?
Because nonprofits serve such important roles in our community, especially in Muncie, IN where the Indiana Secretary of State reports that there are 736 nonprofits registered in our county. As a state, Indiana is home to more than 28,000 nonprofit organizations, which is about 4.33 nonprofits per thousand people! To put that into perspective, Texas has 3.48 nonprofits per thousand and California has 3.69.
Everyone benefits from nonprofits and if you aren’t sure that you do, check out this blog from May about the ways you’ve interacted with a nonprofit in our community.
This blog features a recap of the content from Nonprofit 101 from our Nonprofit Essentials program.
Stay tuned for more blog posts breaking down this topic.
If you have specific questions about nonprofits in Muncie and Delaware County, reach out to Carly, Relationship and Resource Director.