Not-for-Profit Organizations

What is a “Not-for-Profit Organization” ?

The terms nonprofit, charity, and not-for-profit are used interchangeably to designate an entity organized under state law for purposes other than the financial enrichment of its founders or its members. Nonprofit entities may make profit, which is an excess of their revenue over their expenses. And it is good management that a nonprofit organization makes a profit. However, unlike a regular for-profit organization, a nonprofit organization’s revenue that exceeds its expenses at the end of the accounting period should not be distributed to its founders, members, directors, or officers. A nonprofit organization can take different forms and pursue different purposes.

It may take the form of a corporation, an individual enterprise, or an unincorporated association such as a partnership, a foundation, a trusteeship, or a condominium. Examples of nonprofit organizations include churches, public schools, public charities, public clinics and hospitals, volunteer services organizations, museums, professional associations, research institutes, legal aid societies, political organizations, some governmental agencies.

Not-for-Profit Organizations and federal tax

For federal tax purposes, a nonprofit organization may apply to be exempt from income tax if it meets certain requirements including being organized and operate exclusively for religious, charitable, scientific, public safety, literary, educational, prevention of cruelty to children or animals purposes, and/or to develop national or international sports. Nearly half of hospitals in the U.S. are nonprofits, and there are about 350,000 nonprofit religious congregations.

Nationwide, an estimated 1.3 million Section 501(c)(3) charitable organizations feed, heal, shelter, educate financially and medically vulnerable Americans, nurture and respond to extraordinary community needs. For instance, demand for services from food pantries has exploded during the COVID-19 pandemic outbreak. And between March 2020 and June 2020, the hunger-relief charity Food Bank for New York City has distributed nearly 21 million meals. In New York State, as of October 2020, there were 87,913 charities registered with the Charities Bureau.

An active and dynamic sector

Nationwide, the nonprofit sector employs 12.3 million workers, that’s more than 10 percent of the total workforce of the private sector of the U.S. economy. It also benefits from the pro bono service of 64 million board members and volunteers. Most nonprofits (97%) have annual budgets of less than $5 million and 88% of nonprofits operate with less than $500,000 per year. In New York State, the nonprofit sector employs 1.4 million New Yorkers; about half of them (660,000) are employed in New York City.

Nearly half of charities derive their revenue from private fees that they charge for services; government grants and contracts account for about one third of nonprofit organizations’ revenue. Charitable contributions represent 14% of nonprofit organizations’ revenue including 9% of donations from individuals and 0.9% from companies. In New York, about two million New York State taxpayers reported $42.5 billion in charitable giving in 2017, up from $37 billion the previous year.

There are 127,000 private foundations in the country. The fifteen largest foundations such as the Gates Foundation, the Open Society Foundation, and the Ford Foundation have a combined net worth of $193 billion.