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Creating a Nonprofit Organization: An Overview

The National Sector for Charitable Statistics estimates that there are 1.56 million nonprofit organizations logged with the Internal Revenue Service (IRS) of the United States. The following is an overview of things to know when creating a nonprofit organization.

What Are Nonprofit Organizations?

Nonprofit organizations are tax-exempt businesses that exist with the sole purpose of making public aid accessible and to expand a social cause.

Nonprofit organizations that want to register with the IRS must clearly state in organizing papers that its revenues will not be used for the personal gain/use of its founders, workers, factions, relatives, or friends.

  • These businesses may not distribute its proceeds to associates, executives, or officers.
  • They must also keep compliance with state agencies that control charitable organization policy.
  • Nonprofit organizations may not contribute to any political campaign on behalf of any candidate or create costs for political reasons.
  • Also, nonprofit organizations must pay wages to full time staff, administrators, and directors. Volunteers have no wage regulation.

It’s also worth noting that “nonprofit organizations” and “not-for-profit organizations” are not the same thing. Not-for-profit organizations often have a different mission than nonprofit organizations. They are also not required to provide a public benefit through the goods or services they offer.

What Are the Different Types of Nonprofit Organizations?

Registered nonprofit organizations must fit within one of the 10 major categories and over 600 subcategories classified by the National Taxonomy of Exempt Entities (NTEE).

The 10 major categories of nonprofit organizations are:

  • Arts, Culture, and Humanities
  • Education
  • Environment and Animals
  • Health
  • Human Services
  • International, Foreign Affairs
  • Public, Societal Benefit
  • Religion-Related
  • Mutual/Membership Benefit
  • Unknown, Unclassified

Most nonprofit organizations are classified as “human services” (35.5%). California is the state with the most nonprofit organizations (160,720) registered with the IRS. Whereas, Wyoming has the least (4,612).

What Are the Benefits of Creating a Nonprofit Organization?

One of the benefits of creating a nonprofit organization is the ability to help others and work to promote an important cause.

Nonprofit organizations are where many of us get useful resources including:

  • Animal Shelters
  • Community Theaters
  • Public Schools
  • Public Housing Services
  • Community Shelters
  • Disaster Assistance Services
  • Assistance for Children and the Elderly
  • Churches
  • Civil Rights Groups
  • Art Organizations

Please note, this is not a complete list of programs, services, and facilities that come from creating nonprofit organizations.

Another benefit is that nonprofit organizations are exempt from paying federal taxes. Also, individual and business contributions to nonprofit organizations are often tax deductible for the donor.

This simple overview gives you an idea of what a nonprofit organization is, the types of nonprofit organizations, and what advantages there are for your community and individuals, including yourself.

If you are thinking of starting a nonprofit organization and would like to see how we can help you, please contact us.