There is a difference between a nonprofit and a charity. If you’re in the nonprofit field, you need to know the difference.
What is a Nonprofit?
In North Carolina, a nonprofit is any corporation founded under the North Carolina Nonprofit Corporation Act. They operate just like any other business except they have some added rules. For example, you cannot own a nonprofit in the same way you own a corporation. Instead, a board of directors manages the nonprofit.
Additionally, you can’t pay yourself the profits. Instead, a board of directors has to set your wages. You can sit on the board yourself. However, you have to abstain from any decisions that directly affect you. That’s how you avoid conflicts of interest.
Beyond those things, you can run a nonprofit the same way you run a for profit company in North Carolina. However, you don’t get the beneficial tax treatment as just a nonprofit. For those, you need a charity.
What is a Charity?
To be a charity, you need the federal tax recognition. Actually, the difference between a nonprofit and a charity is enough you could get in serious trouble. You could even see jail if you do this terribly wrong. It matters when you’re dealing with donors.
People want charitable recognition because it allows donors to deduct the donation from their individual tax liability. Donations to just a nonprofit do not come with the same tax benefit. Therefore, it also matters if someone calls themselves a nonprofit or a charity. You can still take donations as a nonprofit, but you better be sure your donors know there’s no tax deduction.
The IRS has a long guide on what it means to be charitable. It might be easier for you to remember as anything that gets you 501c3 recognition through the IRS. This isn’t precisely true because private foundations also get 501c3 recognition, but for 99% of circumstances, 501c3 equals charitable.
Knowing the difference between a nonprofit and a charity is important. Here are some important takeaways.
- A nonprofit is not necessarily a charity but can be.
- You’re not a charity unless you’re 501c3.
- If you take donations as a nonprofit, make sure donors know you’re not 501c3.