A not-for-profit constitution isn't prohibited from moulding boodle or turning a Income. That decent can't be its ambition. Not-for-profits hold to elevate coin to get programs, staff salaries, supplies and other expenses, and these groups can -- and Often cook -- proceeds in amassed than they spend. That's pleasant, however provided a category isn't careful approximately where that Income comes from, or where it goes, it can lose its tax-exempt status.
Importance of Activities and Names
How a not-for-profit collection makes method, and what it does with that coinage, determines if the conformation must pament taxes. U.S. tribute edict doesn't absolutely realize the terms "not-for-profit" or "non-profit," and although it's imaginable to attract semantic distinctions between the terms, the excise regulation makes no legal distinction between the contents. What things is if an group's activities assemble it tax-exempt under Cut 501(c)(3) of the Internal Revenue Regulation. The twin rules utilize whether a group calls itself not-for-profit, non-profit or something else.
Tax-Exempt Profit
A not-for-profit doesn't have to pay taxes on money it makes from activities related to its primary mission, as long as that mission is religious, charitable, scientific, educational or literary, or promotes amateur sports competition, or works to prevent cruelty to animals or children.A not-for-profit can also make money from activities unrelated to its primary mission, but it will have to pay taxes on that money. Say the science group starts selling DVDs of its lectures. That part of the operation really takes off, and soon the group has a profitable side business distributing movies and music videos on DVDs. That profit is not related to the group's primary mission, so it's taxable.
Say a not-for-profit group dedicated to science education sponsors a lecture series on science topics and charges admission. Even if the group makes a profit from the lectures, the money came from activities related to its primary scientific and educational purposes, so it's exempt from tax.
Taxable Profit
A not-for-profit group has to be careful here; if the unrelated business comes to consume a significant portion of the group's resources, time and effort, the group could lose its tax-exempt status entirely.Spending
If a not-for-profit ends up turning a profit, it can't use that money for the "benefit of any private shareholder or individual," according to the Internal Revenue Code. That means it can't distribute its profits as dividends to employees, members or anyone else. Profits must remain available for activities related to the group's mission.
