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hey everyone so today we're going to talk about what is a non-profit let's get into it [Music] everyone i'm tiffany allen i help new and small non-profits get up and running if you need help with your non-profit please subscribe to this channel i drop a video every single week so today i'm going to take it way way down i'm going to break it down elementary style to talk about what is a non-profit and i wanted to do this video because we make a lot of assumptions because we throw words around a lot so nonprofits get mixed in with what's a not-for-profit or what's a non-governmental organization or what's a charity what's a non-profit charity what's a foundation and i think we think we know what we're talking about but there are very specific definitions when it comes to different ways that you conduct business and i'm just talking about in the us right now but there are very specific definitions for some of these terms and sometimes we make assumptions that are just kind of flat out wrong so i just wanted to dispel some of the myths to help you get get a better understanding of what the definitions are so you can be better equipped when you start your non-profit or as you're working for a non-profit organization so let's just start with the basic definition of what a non-profit is it is just essentially an organization that started where the primary focus is not to make money that's like the primary goal of a nonprofit so your mission is the driving force not the ability to make profit now i want to stop here and say that that does not mean that you should make a profit okay because a non-profit is still a business and a business cannot survive if you're not making money so that conversation about how to make profits and how to make money you have to have that conversation and you have to figure that out as you're starting a non-profit it's just that that's not the driving force behind the decisions you make and how you move what really drives your decisions is your mission or your purpose statement or the reason why you're existing that's kind of the purpose of a non-profit so i'm going to kind of break down from there what does that mean what are the implications for that as you become different types of nonprofits so the first thing i'll say is that just because you have a non-profit it does not mean that you are a charitable organization that is not the same as saying that you are a charity and you may be surprised by me saying that but just sit back and think about it so there are a lot of different non-profits there are hospitals there are schools there are like health insurance issuers there are social clubs there are associations so some nonprofits are built to serve the community or the betterment of society so they have a charitable focus but some nonprofits are formed to serve its members and its members only so it's not necessarily a charitable service that they're providing and that's okay right they're still a non-profit they're still structured in a way where they are not necessarily taxed or deemed for the income that they make so how do you know whether or not your nonprofit is charitable or not the biggest distinction you can use to make and to figure that out is whether or not you have 501 c 3 tax exempt status that's why sometimes you'll see people use 501 c 3 organization and a non-profit interchangeably because yes if you are a charitable non-profit in most cases you are or you're eligible for 501 c 3 tax exempt status now i have another video that kind of breaks down what is a 501c3 organization and i'll briefly go over it in this video but it's just a tax-exempt status set up by the irs for organizations that have a charitable purpose and i'll give you like the link in the language directly from the irs which explains the purposes of a charitable organization and how they need to be organized and for what purposes but if you qualify for that definition under the irs then you qualify for 5013 tax-exempt status and you won't get taxed on the income that you make so the irs will not tax you for anything that you do related to your mission now if you're making money and it has nothing to do with your mission they will tax you they will ask you about that but anything related to your mission they will not so that means that you are basically eligible for grants and people can donate money to you and they can get a tax write-off for that money that they give to you so the other thing that i'll say about 501c3s is first that no one can directly benefit from any profits or anything like that from the organization so if you have a really good year it's not like you're going to drop a check in the founder's mailbox just because you had a good year if they didn't do anything to earn that check so that's how they operate differently from businesses and the other thing about 501 c 3s you cannot use a significant portion of your activities to do lobbying in the political realm and you cannot endorse or campaign for any political candidates so there are some stipulations to 501c3s but the vast majority of charitable nonprofits or nonprofits that do charitable work qualify and have tax-exempt status now just remember there are many other tax-exempt statuses that the irs has 501c3 is not the only one there's a 501c4 if you want to do more with the political lobbying and things like that there are 29 different tax-exempt statuses so you can be a club or association as a non-profit but not be a 501c3 it can be a 5016 and all that kind of stuff so just to clarify you don't have to be a charitable non-profit to be a non-profit and you don't have to have 501c3 status to be a non-profit i hope all of that makes sense the other thing i'll say is you'll see some stuff about non-governmental organizations or ngos that is really a it's an international term so when you're in the u.s that's used outside of the u.s to represent organizations that are not affiliated with the government in which a lot of instances they are charitable organizations in other countries but even in my research i found that they don't have to be non-profits to be a non-governmental organization they can be for-profits as well so they're not exactly one-to-one but i would say in most cases ngos and other countries other than the us are charitable non-profits and can be comparable to what we consider charitable nonprofits so the last thing i'll say about this is there's some online discussion about the differences between not-for-profit organizations and nonprofits and there are some blogs that'll say they're different and this is how they're different and i'm just going to be honest and looking at their justifications for why they're different i do not see the difference it does not make sense to me when they're explaining it so i've also seen other lawyers kind of pitch in and add their two cents around you know what people are saying about the differences and they're saying there is no difference and i'm going to agree with them there is no difference between a not-for-profit and a non-profit okay so both of those type of organizations were formed not for the purposes of just making money right and so that's the same thing i think a lot of people get caught up because they again assume that a non-profit is a charitable non-profit but a nonprofit can be almost anything a non-profit could be a foundation right a nonprofit could be um a private foundation that gives money they are considered nonprofits as well so again i would rather stay with the simple version than and say that they're just the same thing they just they weren't formed to create a profit and i know i said that what i was saying before the last thing but this is the last thing okay so what's the difference between a public charity and a private foundation i have gone over this in some other videos specifically the video about how to apply for tax exempt status but when you apply for 501c3 taxes and status you have to identify whether or not your organization is a public charity or a private foundation right the irs will automatically designate you as a private foundation and you have to self-identify as a public charity right so what's the difference how do you know what the difference is the main difference is your source of income right so as a public charity you are declaring that you are getting your income from a variety of sources it can come from government funding from grants from donors for for charging for services so you are getting a range of public sources of income right but as a private foundation you are really declaring we're really getting our money from one or two sources and we want to dictate how that money is spent and where that money goes and we mainly want to provide grants to public charities to do the work we don't really want to do the work we we just want to provide the resources so the private foundations could be like a family foundation where you get a pool of money and you decide we want this money to go for this purpose right so as a public charity you can't necessarily dictate all the time where the money goes you have to dictate based on what the donor specified right so as a public charity you're getting money from more sources but you have less control over how that money is spent and as a private foundation it's a very limited number of sources and you can more so dictate now there are differences to how you can get tax deductions if you give to a public charity versus a private foundation so i'll link to the irs so you can read more about that and also there's a hybrid between a public a public charity and a private foundation called a private operating foundation so i will also link that below so you can understand the differences and you can read and research for yourself but just to let you know that if you are a charitable non-profit you want to do community services and serve people or serve things in the community you are more than likely a public charity but always read for yourself and do your research and if you need help seek out the help of of a professional to help confirm what you know or what you think you want to do okay so i hope all this was helpful thank you for watching me today if you need help please visit me at .bostonbudget.com and i will see you in the next video you