Not-for-profit entity

A not-for-profit entity is an organization that does not have any ownership interests, nor does it earn a profit as its operating purpose. Also, a not-for-profit entity takes in contributions from third parties that do not expect any form of commensurate product or service in return. Typically, a not-for-profit entity operates as a charity or performs some type of public service. These organizations usually apply to the IRS for tax-exempt status as a 501(c)(3) organization, so that donors can deduct any donations made on their tax returns.

A not-for-profit entity does not pay any property taxes or sales taxes, but it might pay income taxes on any earnings from activities that fall outside of its nonprofit protected status. The organization must also pay payroll taxes on compensation paid to its employees.

Related Courses

Nonprofit Accounting