Non-Profit Vs Not-for-Profit

A non-profit organization is a separate legal entity that can accept donations and is not required to pay income tax as they are created for charitable purposes. While not-for-profit organizations conduct operations and earn profits, they neither distribute those profits nor accept donations.

Therefore, they are not separate entities and are not tax-exempt. Rather, they have specified purposes. It is often assumed that non-profit and not-for-profit organizations do not profit from their business activity. That is a misconception. These organizations make profits like any for-profit organization. The only difference lies in the way these profits are used. The basic aspect that differentiates these organizations is the purpose of their existence. They do not work only to earn profits. Rather, their priority is first to serve society.

Let us try to understand in details non profit vs not for profit organization. Both these organizations are similar in many ways. The main characteristic that is same in both is that they do not work for earning profit.

Non-profit organizations are businesses that are granted tax-exempt status. Also, donations made to these organizations are tax-deductible to the entity that makes them. However, they have to open their operations and financial position to the public to know that their contribution has been used effectively. They do not pay any income tax on the money they raise through donations and the money they receive in fundraising. They are also referred to as NPOs.

Non-profit organizations can operate in religious, educational, public safety, or research sectors or purposes. However, these organizations have to generate some public benefit. Another important point to note is that all non-profit organization may work as not-for-profit entity but the the opposite is not possible. A not-for-profit entity cannot work as a non-profit one.

Not-for-profit organizations do not earn profits for their owners. Instead, all the earned money is donated to the not-for-profit organization that pursues the organization’s objectives. These organizations are typically charities or other types of public welfare organizations. They are not exempt from taxation but can apply for tax-exempt status. Donations made to these tax-exempt, not-for-profit organizations may be tax-deductible for the donor.

One thing to note here is that these organizations do not pay sales or property taxes. Looking at the broader picture, both these institutes do not work for profits and are devoted to serving humans and working for the improvement and wellness of society. Therefore, as responsible citizens, we should contribute and push such organizations to improve the community we live in.

The concept may be explained clearly with non profit vs not for profit examples.

Example#1

To explain a not-or-profit organization, let us assume that there is a church inside a town. This church has been established as a not-for-profit organization, with the sole purpose of allowing the devotees to visit it and offer their prayer. Thus, being a not-for-profit organization, it will not have to pay any property tax to the local government. However, it will accept any kind of donation in the form of funds, clothing, furniture or anything which can be used inside the church. It can also sell the articles and earn money which may be used for its maintenance and charitable purpose. It does not have to pay any property tax even if the church authority uses it a a storehouse. However, they have to pay taxes on the payroll of their employees.

Example#2

To explain a non-profit organization, let us take the example of Red Cross. It has volunteers and staffs globally which was set us with the humanitarian purpose of saving and protecting survivors of any kind of disaster and emergencies, prevent spread of diseases, providing training regarding healthcare, etc. Thus, it is a charitable institution that has a tax-exemption status. It is an independent entity.

The two non profit vs not for profit examples given above clearly explains the concept.

• Non-profit organizations work for charitable purposes, while not-for-profit is small groups formed for some common interest.
• The profits earned are used to manage the expenses for meeting the goal, and no profit is used for personal gain. They do not have employees but volunteers working for them. Similarly, not-for-profit does not aim at making profits. However, whatever revenue is earned is first used to pay off salaries where the remaining money is put back into the business. There are no shareholders
• Since non-profit organizations have to justify their use, the money accounting standards are much stricter. Not-for-profit organizations do not have to report revenues to the public; hence have less strict accounting policies.
• A large group of people runs non-profit organizations compared to not-for-profit organizations.
• Non-profit organizations can form a separate legal entity and are tax-exempt. On the other hand, not-for-profit organizations cannot form a separate legal entity and are not tax-exempt.
• Charity fundraising is how non-profit organizations can increase revenues. However, not-for-profit organizations increase revenues by sales and profits.

The table given below explains the main points regarding non profit vs not for profit organization.