Answers to Go with Susan Smith
Q. What is the difference between nonprofit and notfor-profit organizations?
A. I found two different answers to this question in our reference books and online sources.
According to the online source Investopedia, “A not-for-profit organization (NFPO) is a widely-based term that encompasses all organizations that are known more specifically as nonprofits, charities, non-governmental organizations (NGOs), civil society organizations (CSOs) and private voluntary organizations (PVOs)… The difference between 'nonprofit' and 'not-for-profit' is largely a matter of semantics.”
Our library reference books seem to agree with this point of view. Their indexes either omitted the phrase “not-for-profit” entirely or referred to an article on “nonprofit” which did not mention “not-forprofit.”
A lengthy article on nonprofits in the online source, Wikipedia, did have a different take on our question. Let’s refer to the key passage: “Both nonprofits and notfor-profits are tax exempt under IRS publication 557.
“Although they are both tax-exempt, each organization faces different tax code requirements. A nonprofit is tax exempt under 501(c) (3) requirements if it is either a religious, charitable, or educational organization. Not-for-profits are tax exempt under 501(c)(7) requirements if they are an organization for pleasure, recreation, or another nonprofit purpose.
“Nonprofit and not-forprofit are terms that are used similarly, but do not mean the same thing. Both are organizations that do not make a profit, but may receive an income to sustain their missions. The income that nonprofit and not-forprofit organizations generate is used differently. Nonprofit organizations return their income back to the organization if they generate extra income. Not-for-profits use their excess money to pay their members who do work for them.
“Another difference between nonprofit organizations and not-for-profit organizations is their membership. Nonprofits have volunteers or employees who do not receive any money from the organization's fundraising efforts. They may earn a salary for their work that is independent from the money the organization has fundraised. Not-for-profit members have the opportunity to benefit from the organization's fundraising efforts.
“Nonprofits are either member-serving or community-serving. Member-serving nonprofit organizations create a benefit for the members of their organization and can include, but are not limited to credit unions, sports clubs and advocacy groups.
“Community-serving nonprofit organizations focus on providing services to the community either globally or locally. Community-serving nonprofits include organizations that deliver aid and development programs, medical research, education and health services. It is possible for a nonprofit to be both member-serving and community-serving.”
For more general information, I’d recommend the article on nonprofits in “Business and Industry,” an encyclopedia on our reference shelves. We can help you find it on the shelf or scan it and email it to you.
For details related to personal income tax exemptions, come in and look at the chapter on charitable contribution deductions in J.K. Lasser’s "Your Income Tax.”
To decide which charities make the best use of your money, I suggest another online source to check when making charitable contributions: the Better Business Bureau’s www.give.orgwebsite.
I pulled up the entry on a sample charity, the American Red Cross. I saw immediately that it was an accredited organization. I paged down and saw that 90 percent of their funds went to programs, 6 percent went to fundraising, and 4 percent went to administration.
