Difference Between Non-Profit and Not-for-Profit

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.

What is a Non-Profit Organization?

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.

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What is Not-for-Profit Organization?

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 Tax-exemptTax-exempt refers to excluding an individual’s or corporation’s income, property or transaction from the tax liability imposed by the federal, local or state government. These exemptions either allow total relief from the taxes or provide reduced rates or charge tax on some items only.read more, 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. For example, if a church is established as a not-for-profit organization, it will not pay property tax. It accepts clothing as donations and sells it to use the money for charitable purposes. It will not pay property tax even if it uses the church as a store. However, they have to pay taxes on the payroll of their employeesPayroll Of Their EmployeesPayroll refers to the overall compensation payable by any organization to its employees on a certain date for a specific period of services they have provided in the entity. This total net pay comprises salary, wages, bonus, commission, deduction, perquisites, and other benefits.read more.

Non-Profit vs Not-for-Profit Infographics

Key Differences Between Non-Profit and Not for Profit

  • 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 shareholdersSince 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.

Comparative Table

Conclusion

The two organizations are alike in certain ways. But as highlighted above, there are a lot of key differences between them. The major similarity between them is that both organizations are not working with the sole aim of earning profits.

An important thing to note is that a non-profit organization may work as a not-for-profit organization. Still, a not-for-profit organization cannot function as a non-profit organization.

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.

This article is a guide to the Non-Profit vs Not-for-Profit. We discuss the difference between non-profit and not-for-profit organizations with infographics and a comparison table. You may also have a look at the following articles: –

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