Not-For-Profit vs. Non Profit: What’s The Difference?

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Entrepreneurs often become confused when trying to understand the difference between not-for-profit and nonprofit organizations. Both terms are used interchangeably, but they do not mean the same thing. If you are confused about which term to use, you’re not alone. Keep reading to find out the key differences between not-for-profit and nonprofit organizations.

 

What Is A Not-For-Profit Organization?

A not-for-profit organization is an organization that does not earn a profit for its owners or shareholders. The main purpose of these organizations is to provide a public service or benefit to the community.

However, this doesn’t mean that they don’t earn any money. In fact, not-for-profit organizations can earn revenue, but they must use that money to further their cause, not to line the pockets of those in charge. The money typically is used to pay salaried employees and the rest is used to fund the not-for-profit’s programs.

Not-for-profit organizations are typically run by a board of directors who are not paid for their time. These individuals volunteer their time and energy to further the organization’s cause.

 

What Is A Nonprofit Organization?

A nonprofit organization is an organization that has been granted a 501(c)3 tax-exempt status by the IRS (Internal Revenue Service). This means that they do not pay federal income taxes on the money that is donated to the organization, however they may be required to pay taxes on any activity unrelated to the underlying purpose of the organization. Nonprofit organizations must  follow all state and local laws, as well as federal laws, regarding nonprofits.

Nonprofits operate in a similar way as not-for-profits. They are run by a board of directors and they use donations to further their cause, not to line the pockets of those in charge.

 

Key Differences Between Both Organizations

The main difference between not-for-profit and nonprofit organizations is that nonprofits do not have to pay federal income taxes, while not-for-profit organizations do.

Not-for-profit organizations can earn revenue, but they must use that money to further their cause, not to line the pockets of those in charge. The money typically is used to pay salaried employees and the rest is used to fund the not-for-profit’s programs.

Nonprofits operate in a similar way to not-for-profits. They are run by a board of directors and they use donations to further their cause, not to line the pockets of those in charge.

 

How To Use Each Term Properly

If you are not sure which term to use, it is best to err on the side of caution and use the term “not-for-profit.” 

When writing about not-for-profit or nonprofit organizations, be sure to use both terms correctly. If you are not sure which term to use, it is best to ask someone who is familiar with the organization or do some research to find out which term is most appropriate. If an organization is tax-exempt or labeled as 501(c)3, it is a nonprofit organization.

 

Conclusion

Not-for-profit organizations are a type of organization that uses earnings or revenue to further a cause, not to make a profit for those in charge. Nonprofit organizations garner donations to further a cause and do not make a profit for those in charge. The key difference between the two is that nonprofit organizations do not have to pay federal income taxes, while not-for-profit organizations do. When deciding which type of organization to start, be sure to research both not-for-profit and nonprofit organizations to find the one that best suits your needs.