Nonprofits are known by many names: Foundations, associations, councils, chambers, institutes,
societies, committees, task forces or special interest groups.
businesses and trades. An example of an association is the Association for Wine Grape Growers.
represent individuals within a specific profession or industry. A good example of a
society is the Society of Professional Engineers.
groups are composed of people with
similar interests and positions. The Association for Executive Directors is an advocacy group.
, such as the Quilters Guild, represent people with special skills or hobbies. From
this point on, until the end of my course, for the sake of simplicity, I will refer to all nonprofit
Nonprofits are Businesses
Nonprofits are actually businesses. The word
refers to a type of business that is
incorporated into a legal organization that forbids the distribution of profits to its owners. In this
is generally defined as a surplus of revenues over expenditures. Nonprofits are
organized into corporations formed under the corporation laws where they are located. Every
state has provisions for forming nonprofit corporations.
Just like any other business, nonprofits are allowed to own property and have their own bank
account. Many nonprofits never get to the point of owning their own property, but all nonprofits
have their own bank account to accept donations, receive income from fees, events and sales of
merchandise, and to pay bills. They may hold passive investments, employ staff and enter into all
sorts of contracts.
Tax-Exempt and Not-for-profit Designations
Both the state and federal government have a special place in their heart for associations. They
understand that organized groups that do good works, and do not need to make a profit for their
owners, need and deserve special considerations. A common thread that runs through each of
these groups is their
designations. You are likely to hear both of
these terms on a daily basis. These terms are often interchanged incorrectly in daily dialogue, so
be careful when you hear and say these words.
refers to being excused from paying federal income tax. It is not an exemption from
paying state sales tax.
refers to the organization's corporate status. It is not an exemption from paying
state sales tax or federal taxes.
Associations are usually exempt from paying federal income tax, with the exception of taxes on
unrelated business income. ALL nonprofit organizations must file a 990, 990-EZ, or 990-N report
at the end of each fiscal year starting with fiscal year 2007.
Previously, if a nonprofit organization had gross receipts less then $25,000, they did not need to