Every tax-exempt organization is a nonprofit, but not every nonprofit is tax-exempt: What is the difference?
LaQuetta Shamblee, MBA
Author (The Grantbuilder: Step-by-Step Guide to Grant Writing Workbook). Founder/Lead Instructor of The Grantbuilder Academy (online), Nonprofit Consultant: Grants Management, Strategic Planning, Board Development
The words “nonprofit” and “tax exempt” are often used interchangeably, but there are some important distinctions.? Any group or organization that engages in charitable activities is commonly referred to as a nonprofit, whether structured as a legal entity or not.? As long as the organization is not operating to generate a profit, and no part of the income is distributed to its members, directors or officers, it can be considered a nonprofit.
People typically start nonprofits to address some need that is not being addressed effectively by for-profits or government entities, to support some type of worthy cause, to offer programs that assist some segment of the community, or to provide services for its own members.? The characteristics of a nonprofit are: 1) It cannot be organized for the purpose of generating a profit, and 2) No portion of the organization’s income is distributed to its members, directors or officers.
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The following table includes several characteristics that highlight key differences between differ between nonprofits and tax-exempt nonprofits.