August 2, 2023
We hear a lot about charitable giving, the importance of philanthropy, and why we should support nonprofits. But what do those terms really mean? Let’s take a look at what constitutes a nonprofit and how you can get involved with causes locally.
As with nearly everything, the classification of nonprofit relates back to taxes. A lot of people think a nonprofit means an organization can’t bring in a lot of money, but that’s not the case.
Nonprofit organizations gain exemption from (certain) taxes, but they have to complete the proper paperwork to get this status. Groups like the PTA at your kids’ school, volunteer fire companies, and religious organizations are all types of nonprofits.
The National Council of Nonprofits defines nonprofits as entities that don’t pay federal income taxes or pay out profits to shareholders.
It can get confusing when you consider another group of organizations: not-for-profit organizations (NFPO). These include groups like sports teams or clubs. An NFPO is also exempt from federal income taxes.
The main difference relates to how the IRS views donations to the entity. When someone donates to a nonprofit organization, they can deduct it on their own taxes. Donations to an NFPO can’t be deducted.
So, essentially, nonprofits better the community while an NFPO exists for the enjoyment of its members.
Fun fact: both nonprofits and NFPO’s have to disclose their financials to the public. So you can check out the inner workings of your favorite group any time.
Nonprofit Impact on Communities
In order to claim nonprofit status, an organization must prove they benefit the public in a measurable way. Whether they promote scientific research or help kids improve reading skills, nonprofit organizations take care of their neighbors.
With more than 1.3 million nonprofit organizations in the United States, we’ve all benefited from their work in some capacity. Were you born in a nonprofit hospital? Did you enjoy a meal in a nonsmoking restaurant? Have you admired a beautiful river lately? Nonprofit organizations have quietly (or loudly and proudly) looked after us for a long time.
Small Business Involvement
As a small business owner, you might wonder how nonprofits relate to your work and whether you should get involved. First, yes, of course you should get involved wherever possible with your local nonprofit organizations.
Nonprofit organizations have their pulse on your local community. They know all the important people and they know what the community needs. Nonprofits can serve as a great resource to learn how your business meets a need among your client base.
Everyone likes the feeling of doing good. Partnering with nonprofits either financially or through volunteer hours gives your employees the chance to enjoy that fulfillment. As the nonprofit organization or a specific event grows, your employees and your business can take pride in growing alongside them.
And, of course, if you’ve chosen a nonprofit organization (as opposed to an NFPO), you also get that tax deduction.
How to Get Involved
You’re probably inundated with requests for support for nonprofit organizations. Sometimes it can be hard to decide where to invest your business’s money and its time. The Chamber has begun featuring a Nonprofit of the Month on our new website. Soon we look to launch a matchmaking forum where members can match their dollars and skills with nonprofits that align with their values. Stay tuned for more!