What is the nonprofit sector?
The nonprofit sector is the collective name used to describe institutions and organizations in American society that are neither government nor business. Other names often used include the not-for-profit sector, the third sector, the independent sector, the philanthropic sector, the voluntary sector, or the social sector.
Within this group, there are many types of organizations. Section 501(c) of the federal tax code, which outlines the types of organizations eligible for tax exemption, lists more than 25 classifications of nonprofits. The major subcategories of nonprofit organizations include:
- Charities: This category includes hospitals, museums, orchestras, private schools, religious organizations, advocacy organizations, public television and radio stations, soup kitchens, and health & human service providers. To be considered a public charity, the organization must be able to show broad public support, rather than funding from an individual source. Individuals and corporations that give money to these organizations can deduct the value of gifts from their taxable income if they itemize.
- Foundations: Many individuals, families, businesses and communities establish foundations as a way to support causes and programs that benefit society. Foundations are one of the most complex 501(c)(3) classifications and can be subject to more stringent regulation and reporting requirements than other nonprofits. The most common types of foundations are Private, Corporate, Operating, and Community.
- Social Welfare: Nonprofits such as the NAACP, the National Rifle Association, and National Organization for Women are exempt under 501(c)(4) of the tax code. Contributions to these organizations are not tax deductible and these groups have greater latitude to participate in legislative advocacy, lobbying, and political campaign activities.
- Professional & Trade Associations: These include chambers of commerce, business leagues, and other organizations that promote the business or professional interests of a community, industry or profession. Contributions are not deductible, but membership dues may be deductible as a business expense. Excerpted from “What You Should Know About Nonprofits” a joint project of Board Source and Independent Sector.
How can you get information about nonprofits?
We have answered some of the most frequently asked questions about nonprofits below, but for information about a specific nonprofit, the best source of information is usually the organization itself. Many nonprofits have websites that have a great deal of information about their programs and finances.
Most nonprofits also publish an annual report that typically includes a statement of the organization’s mission and a summary of its programs, a list of board members and key staff, and financial information.
Another source is the IRS Form 990, an annual information form that most nonprofits must file with the IRS each year. The Form 990 summarizes the organization’s finances, lists the salaries of the highest paid officials, includes the names of board members, and provides a general snapshot of the organizations. Nonprofits are required by law to share their 990 forms with members of the public who ask to see them, and must make the form available during regular business hours or on the Internet. Journalists also can request copies of the 990 from the IRS Exempt Organization center in Ogden, Utah, under the Freedom of Information Act. Nonprofit organizations with annual revenues of less than $25,000 need to file a 990-N e-Postcard.
- Why are nonprofit organizations tax-exempt?
- Can a nonprofit make a profit?
- How are nonprofits monitored, regulated and governed?
- Why do nonprofits have boards, and what do boards do?
- What is conflict of interest?
- How much money should an organization spend on overhead or fundraising?
- What constitutes excessive pay for chief executives?
- Can nonprofits lobby?