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According to BoardSource, the United States is home to more than 1.6 million nonprofit organizations, including public charities, foundations, social advocacy groups and trade organizations. But did you know that not all nonprofits are formed and legislated the same? There are a lot of sub-groups under the nonprofit umbrella, and if you’ve ever considered starting one, it’s good to know a little about what they are.
Most nonprofits in the U.S. are public charities that provide free and low-cost services like health care for the homeless or career workshops for the unemployed. Churches, libraries, museums, hospitals and private schools can all qualify as public charity nonprofits.
- Foundations sponsor programs and events in the community and often fund other nonprofits. Foundations can be established through a family, a community group or through a business. BoardSource estimates that there are more than 100,000 foundations that operate in the United States.
- Social advocacy groups are mostly membership organizations with a goal to advance a set of beliefs or to reach specific goals. They typically use donations and membership dues to disseminate information and encourage social change in accordance with their mission.
- Professional and trade organizations provide programs and services for a group of people in the same profession—The National Writers Union, for example. Members pay dues to join these nonprofits, but they also receive free and discounted classes or career training in the industry.
The public tends to lump all nonprofits into one group, but there are really several types—the IRS recognizes 29 types, in fact. They’re all, to some degree, exempt from federal taxes and many state taxes. But each type is different when it comes to eligibility, lobbying, electioneering and tax deductible contributions.
While the most common nonprofit is a 501(c)(3), it’s good to know what other types the IRS recognizes. If you’re thinking about starting an organization, you’ll want to determine your goals and vision first.
For example, do you want to engage in politics? A 501(c)(4) classification might be appropriate for you. Both 501(c)(3) and 501(c)(4) organizations are exempt from paying federal income tax, but the latter can engage in political activity, endorse or oppose political candidates or donate money to political campaigns, all activity that that's impermissible for 501(c)(3)s. If you want the best of both worlds, you can form two organizations—a charitable 501(c)(3) and the other a 501(c)(4) lobbying arm. Many trade organizations have done this.
Here's a quick look at the classifications that cover the great majority of nonprofits in the U.S.:
Whether you’re interested in starting a nonprofit or growing your existing one, we have the necessary tools and functionality to help get you on your way
- 501(c)(1). Corporations organized under Act of Congress, including Federal Credit Unions. These nonprofits don’t have to file annual returns, and tax-exempt contributions are allowed if they’re made for public purposes only.
- 501(c)(2). These are holding corporations for exempt organizations, which means they can hold title to the property of a tax-exempt group.
- 501(c)(3). The most common type of nonprofit, these are organizations that help to serve or educate the public and operate mainly through donated funds. They can be religious, educational, charitable, scientific, literary and more. This is what the general population usually thinks of when they consider “donating to charity.” Each 501(c)(3) has to file a Form 990, which discloses the organization’s finances for the year.
- 501(c)(4). These are civic leagues, social welfare organizations and local associations of employees. They promote community welfare, charitable, education or recreational goals. This type of nonprofit is often confused with the 501(c)(3), but they’re different especially regarding permissible political activity. The NRA and AARP are examples of 501(c)(4) organizations. A 501(c)(4) organization is permitted to engage in lobbying to achieve its social welfare purpose.
- 501(c)(5). Labor, agricultural and horticultural organizations fit in this category. Typically, their goal is to improve work conditions, products and efficiency.
- 501(c)(6). These organizations are business leagues, chambers of commerce and real estate boards, among others, and work to improve business conditions. It’s important to note: Contributions to a 501(c)(6) are not tax deductible as charitable contributions, but they may be deductible as a trade or business expense.
- 501(c)(7). This classification is for social and recreation clubs that promote pleasure, recreation and social activities. The YMCA is a popular organization in this category.
Whether you’re interested in starting a nonprofit or growing your existing one, we have the necessary tools and functionality to help get you on your way. Simply sign up to request a free demo of our nonprofit website platform or call 877.447.8941.