key term - Not-for-Profit

Definition

A not-for-profit organization is an entity that is focused on a mission or purpose other than generating profit for its owners or shareholders. These organizations are typically exempt from certain taxes and their primary goal is to serve a public or mutual benefit rather than maximize profits.

5 Must Know Facts For Your Next Test

1. Not-for-profit organizations are focused on a mission or purpose rather than generating profits for owners or shareholders.
2. These organizations are typically exempt from certain taxes, such as federal income tax, as long as they meet specific criteria set by the government.
3. Not-for-profits can take various forms, including charities, foundations, trade associations, and professional societies.
4. Funding for not-for-profits often comes from donations, grants, membership fees, and revenue from services or products they provide.
5. Not-for-profits must use their resources to further their mission and are prohibited from distributing profits to individuals or shareholders.

Review Questions

• Explain the primary purpose and key characteristics of a not-for-profit organization.
  • The primary purpose of a not-for-profit organization is to serve a public or mutual benefit, rather than to generate profits for owners or shareholders. These organizations are typically exempt from certain taxes, such as federal income tax, as long as they meet specific criteria set by the government. Key characteristics of not-for-profits include a focus on a mission or purpose, the use of resources to further that mission, and a prohibition on distributing profits to individuals or shareholders.
• Describe the different types of not-for-profit organizations and their sources of funding.
  • Not-for-profit organizations can take various forms, including charities, foundations, trade associations, and professional societies. Funding for these organizations often comes from donations, grants, membership fees, and revenue from services or products they provide. Unlike for-profit businesses, not-for-profits are prohibited from distributing profits to individuals or shareholders and must use their resources to further their stated mission or purpose.
• Analyze the role of tax-exempt status in the not-for-profit sector and its implications for these organizations.
  • Tax-exempt status is a key feature of not-for-profit organizations, as it exempts them from paying certain federal, state, and local taxes, such as federal income tax. This tax-exempt status is granted by the government to organizations that meet specific criteria and operate for a charitable, religious, educational, or scientific purpose. The tax-exempt status allows not-for-profits to devote more of their resources to their mission and purpose, rather than having to pay taxes on their income or activities. However, not-for-profits must maintain their tax-exempt status by adhering to various rules and regulations set by the government, which can have significant implications for their operations and decision-making.

Related terms

Nonprofit: A nonprofit organization is a type of not-for-profit that is organized and operated for a specific purpose, such as charitable, religious, educational, or scientific, and is exempt from paying certain federal, state, and local taxes.

Tax-Exempt: Tax-exempt status is a designation granted by the government to certain organizations, including not-for-profits, that exempts them from paying federal income tax on the money they receive for their operations and activities.

Charitable Contribution: A charitable contribution is a donation made to a qualified not-for-profit organization that is eligible to receive tax-deductible contributions from individuals and businesses.