A not-for-profit business, or a nonprofit, is a type of business created to perform a charitable function. The goal of the business is to spend all of its proceeds on its mission and therefore, not to make a profit.
- A true nonprofit entity in the United States functions as a 501(c)(3) organization. Any donations or gifts given to the charity, where a benefit was not received by the individual, can be deducted from that individual's taxes in the next calendar year.
- A not-for-profit business functions to complete a specified mission. Churches and large charitable organizations, such as the March of Dimes and the American Cancer Society, are examples of not-for-profit entities. The March of Dimes operates to eradicate premature birth while the American Cancer Society operates to eradicate cancer.
- Some not-for-profit businesses function to provide a service, such as homeless shelters. Some function to provide education and information, such as some schools and after-school programs. Others nonprofit businesses promote research and education to eradicate diseases or other issues through research and education.
- A not-for-profit business is run differently than a for-profit business. In nonprofit businesses, at the end of the fiscal year, a majority of the income should be spent to cover expenses with a reserve fund in place (but most not-for-profit businesses do not have a reserve fund and deplete their resources in full each year). The goal of a for-profit business, however, is to have excess funds left over at the end of the year as part of a reserve fund in addition to profit for its shareholders.
- Many assume that not-for-profit businesses rely solely on monetary donations to survive. While this is true to some extent, many nonprofit businesses have begun selling items or providing services in exchange for payment to help further their cause and lessen their dependence on donations.
- Prior to making a donation to any not-for-profit business, do your research. Check to make sure that the business is a registered nonprofit and that your donation will be tax deductible. In addition, request a Form 990 on the business to show a breakdown of where its funding is actually spent. This will help you decide if the not-for-profit business is running in accordance with your values.
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