Key Term

What is Nonprofit?

Definition

A nonprofit organization, also known as a not-for-profit organization, is a legal entity organized and operated for a collective, public, or social benefit, rather than to generate profit for owners or shareholders. These organizations are granted tax-exempt status by the Internal Revenue Service under section 501(c)(3) and other subsections, allowing them to accept tax-deductible donations and operate without paying federal income taxes on their revenue related to their charitable mission.

Significance

Nonprofits play a crucial role in charitable giving as they serve as the primary vehicles through which donors can make tax-deductible contributions to support various causes and social missions. Their tax-exempt status ensures that more resources can be directed toward their charitable purposes rather than paying taxes, making them efficient channels for philanthropic giving. Understanding nonprofit status is essential for donors who want to maximize their charitable impact while potentially receiving tax benefits, and for organizations seeking to structure themselves in a way that best serves their charitable mission.