Tax Exempt NonProfit Bible: IRS Publication 557
NonProfit, Non Profit, Not For Profit or NPO
An organization formed and managed for the purpose of promoting activities that benefit the public in general or specific classes or individuals without any commercial or profit motive. The organization is constitutionally recognized at the state level. Unlike a For Profit business, no stock may be issued for a NonProfit organization.
NonProfits are often run by volunteers, although compensated employees are appropriate in many circumstances. NonProfits are distinguishable by the presence of a beneficiary class- in some cases the general public (e.g. Save The Planet) or a class of individuals (Katrina Relief Fund). Where a For Profit business has customers, the NonProfit organization has donors and beneficiaries. A well-managed For Profit business expects to have an annual profit while a well-managed NonProfit with higher income than expenditures would instead produce a surplus.
Tax Exempt, Tax Exemption
Tax Exempt is a status granted an organization or individual by a state and/or the federal government whereby they are excused from taxes that would otherwise be mandatory for the general business community or population. Removal of the tax burden is done to promote the activities of an organization deemed beneficial in some way by the state or federal government for a purpose they have established as appropriate for exemption from taxes.
Charitable Organization, Charity
A Charitable Organization, or Charity, is a NonProfit organization involved in generous acts for often underprivileged or specially challenged segments or members of society. A Charity also has broad support from a spectrum of donors. The I.R.S. includes Churches, Schools, Hospitals and Medical Research Organizations among the organizations it classifies as Charitable organizations.
The word Foundation is used generally to otherwise describe any charitable organization, while the IRS classifies NonProfit organizations with a single or limited base of donors to be a Private Foundation. While the Foundation performs similar generous acts to a Charity it has no, or a much lesser reliance on, public support. The I.R.S. has tax regulations specific to Private Foundations that are more restrictive than those that apply to Charities, and very specifically in the area of allowable deductible donations as a percentage of the donor's income. In most circumstances the Charity donor is eligible to deduct donations totalling up to 50% of their adjusted gross income while the Private Foundation donor is normally limited to 30%. The IRS has detailed information on the exceptions to these general limits in their Publication 526.
Tax Deductible refers to a reduction of a taxpayer’s gross taxable income by the amount of a donation made to an eligible NonProfit Tax Exempt organization.