Nonprofit Breakdown: What Are the Different Types of 501(c) Nonprofits?

A nonprofit is an organization that is formed to benefit the public good, a specific group of individuals, or the membership of the nonprofit. These organizations are typically tax-exempt due to their contribution to the public good, and donations to nonprofits can be tax-deductible. Excess revenue generated by the nonprofit is put back into that organization or is donated, otherwise, the organization may lose its tax-exempt status.1 This is quite a simple definition, as in reality there are many classifications of nonprofit organizations. 

Nonprofits can apply for 501(c) status with the IRS in order to gain federal tax exemption, and are then further classified under the different 501(c) categories.2 In total there are 27 types of nonprofit organizations, all of which have different rules surrounding eligibility, lobbying, and tax-deductible contributions.3

501(c)(3) is the most common classification for nonprofit organizations, and nonprofits that fall under this category are often referred to as charitable organizations. Some nonprofit and for-profit organizations create related 501(c)(3) nonprofits in order to perform tax-exempt, tax-deductible charity work. In order to qualify for this classification, the organization must fit a tax-exempt purpose as defined by the IRS, such as a charitable, educational, religious, or scientific function. Alongside being exempt from federal sales and income taxes, 501(c)(3) organizations are the only nonprofits that provide donors with a tax deduction for their contribution.4 There are two main categories within the 501(c)(3) classification: private foundations and public charities. The majority of public charities are human service organizations, while others are arts organizations, education groups, health-focused organizations, community and civil rights groups, religious organizations, environmental and animal protection groups, and international development and human rights-focused organizations.5 Simply Virtuous is classified as a 501(c)(3) charity with the intent of promoting philanthropy. 

Another common type of nonprofit is a 501(c)(4) organization. Technically classified by the IRS as social welfare organizations, 501(c)(4) nonprofits are often involved in political campaigns and lobbying. Unlike 501(c)(3) nonprofits, 501(c)(4) nonprofits are allowed to participate in politics, as long as politics is not their primary focus (less than 50 percent of their money is spent on politics). 501(c)(4) nonprofits do not have to disclose their donors, making them distinct from Super PACs, which must disclose the identity of their donors.6 Donations to 501(c)(4) nonprofits are generally not tax-deductible, unlike 501(c)(3) charities.7 Sometimes 501(c)(3) charities will set up a separate 501(c)(4) organization in order to have greater freedom to influence politics. For example, Simply Virtuous supports the Free Press, a 501(c)(3) nonprofit. The Free Press also has a related 501(c)(4) organization called the Free Press Action Fund. 

 

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