There are three main types of charitable organizations: public charities, private foundations, and private operating foundations. The corporation is the most common, and usually best, form for a nonprofit organization. Nonprofits are sometimes referred to as non-stock corporations, or 501(c)(3) organizations, known for not distributing any profits generated and not issuing stock. While enjoying federal tax benefits on income, nonprofits typically must pay employment taxes for hired staff.
Unincorporated nonprofit associations are the result of two or more people collaborating for the purpose of providing a public benefit or service.
Significance and Types
Nonprofit organizations are critical to addressing issues facing society. The diverse range of nonprofit types reflects the varying needs of society. If you are establishing a nonprofit organization, support is available to determine its category.
In the United States, there are over 1.6 million nonprofit organizations categorized as tax-exempt by the IRS. The federal tax code recognizes over 30 types of nonprofits. Some are fully or partially tax-exempt and may accept contributions from donors. They are separate legal entities, managed by a board of directors or members, and must be formed according to their state’s rules.
Tax-Exempt Status and Differences
Nonprofits are exempt from federal income tax under Section 501(c)(3) if they meet certain requirements. There are numerous categories and tax-exempt statuses, with the common rule being a nonprofit cannot pay profits to individuals or shareholders. Nonprofits differ from non-government organizations in that they usually operate within the U.S.
Distinction Between Different Nonprofits
- Private foundations
- 509(a)(1)
- Religious
- Scientific
- Literary
A 501(c)1 organization, exemplified by federal credit unions, is not required to apply for tax-exempt status or fill out annual tax returns because they were organized by Congress. This is different from a 501(c)(3) organization, which must meet specific IRS requirements.
Common Nonprofit Types
- Charity
- Public charity
- Foundations
- Social advocacy groups
- Trade organizations
Notably, charities in the U.S. contribute a significant portion of the nonprofit sector’s reported revenue and expenses.