If you donate to charitable causes or want to start then you’ve no doubt heard the terms “Nonprofit, Not-for-profit” and “Charity” thrown around. You’ve likely never had the difference explained to you, even by the organizations themselves. You may not have even known there was a difference since people tend to use these terms interchangeably. You likely didn’t know simply because it’s a complicated distinction that, in defense of the organizations, isn’t worth advertising. It basically boils down to strict legal semantics relating to the level of certification or status of a particular organization in the eyes of the state.
To be called a charity or nonprofit/not-for-profit, an organization must be recognized by the state as a separate entity. This makes them different from smaller groups, not chartered by the state, that might also do charitable deeds. So, just because a group of people gets together to, say, clean up waste near the area’s roads, they are not considered a charity or nonprofit, despite the good work they do for free.
Nonprofit vs. Not-for-Profit
There is also a distinction that can be made between the terms “Nonprofit” and “Not-for-profit.” Both are organizations that work in support of people, pets, projects, or ideas: a not-for-profit is actually a subclass of nonprofits. The only difference between them is that not-for-profits don’t technically use funds to support a need or provide a service that’s seen as necessary, even if they are charitable. So a charitable organization for those who enjoy hunting and is labeled “not-for-profit” could not claim tax exemption for funds spent in pursuit of that hobby.
Charity vs. Nonprofit
Charities and nonprofits are also made distinct by how they use money. A charity must use its funds to operate exclusively for charitable purposes. A nonprofit can use its donations for any purpose but profit, like social welfare, civic improvement, or recreation. Because of this, nonprofit organizations will be less likely to offer tax deductions on donations. It isn’t impossible, however, so check the organization’s information against the IRS’s guidelines for charitable giving deductions to find out for sure.
While it’s nice to know these differences, the most practical knowledge you can have about these organizations will be in regards to the one you choose to donate to. What matters most is that you understand your desired charity or nonprofit and have a sense of how they use their money. It’s always best to learn as much as you can, especially if money is involved. With a little research you can find whether your choice is a nonprofit or charity, the way they use donations, the programs they promote, and their exemption status.