A Look at the Different Types of Nonprofits
A nonprofit is an organization dedicated to helping communities at either the local, national or international levels. Such an organization is usually tax-exempt, and has a structure or mission that helps it accomplish its goals.
There are over 1.6 million nonprofit organizations in the United States alone. Total revenue from nonprofit organizations in the U.S. exceeded $84.7 billion in 2019.
Here is a list that includes just a few of the many different nonprofit designations:
Social Welfare Organizations
Social welfare organizations typically promote or lobby towards a social or political effort. They are filed under Section 501(c)(4) of the Internal Revenue Code and are therefore often referred to as 501(c)(4) organizations. Usually social welfare groups receive funding from membership dues or donations from third parties.
You can find these groups engaging in fundraising often, and trying to educate the public. When one thinks of nonprofits, social welfare groups are some of the first that come to mind. It’s important to note that while other forms of nonprofits may not be able to influence legislation, a social welfare nonprofit is allowed to be more politically active, which is the main defining feature of this nonprofit type.
Charitable Organizations
While social welfare organizations may seem like the most prominent nonprofit category, charitable organizations make up the largest share of nonprofits. There are around one million public charities in the U.S. This is most likely due to charitable organizations representing a host of different sub-categories that are prominent in their own right. Religion, education, science and literary organizations all fall within the category that, for tax purposes, is designated with the 501(c)(3) label.
Though art groups, museums, amateur sports organizations, colleges, and low-income housing may not be the first thing that comes to mind when considering charitable organizations, they are all part of this same category.
Donations made to this specific type of organization are tax deductible. Within this variant are five different types: 509(a)(1), 509(a)(2), 509(a)(3), and 509(a)(4).
Foundations
When considering a foundation, the most important thing to remember is the word “grant.” A foundation is a specific kind of nonprofit that makes grants to different organizations or even individuals for charitable purposes like education, religion, and science. They can be either public or private.
A public foundation can gain income from all sorts of different sources including government agencies, while a private foundation receives support from individual donors or corporations. This form of nonprofit isn’t as numerous as charitable organizations, with a total of only 103,430 foundations in the U.S.
Trade or Professional Associations
A nonprofit organization may not always be focused on bettering the local community in terms of a social cause. Sometimes it is focused on the betterment of business conditions.
If your nonprofit deals with real estate or commerce, it will most likely fall under this category. Given the 501(c)(6) designation by the IRS, the category is similar to a social welfare organization, as it too is allowed to participate in politics. In order for a nonprofit to be designated as a trade or professional association, it must file an extra document called Form 1024.
If a nonprofit doesn’t fall under any of the above categories, there are still many different designations available, each with its own respective IRS number. There are near-limitless opportunities when it comes to nonprofits, and so long as you have the right administrator taking care of the paperwork, you can make certain that your organization is being properly designated.