Nonprofit Organization

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DEFINITION of 'Nonprofit Organization'

A business entity that is granted tax-exempt status by the Internal Revenue Service. Donations to a nonprofit organization are often tax deductible to the individuals and businesses making the contributions. Nonprofit organizations must disclose a great deal of financial and operating information to the public, so that donors can ensure their contributions are used effectively.

Nonprofit organizations are also called 501(c)(3) organizations after the section of the tax code that allows them.

INVESTOPEDIA EXPLAINS 'Nonprofit Organization'

Nonprofit organizations don't pay income tax on the money they earn from fundraising activities or donations. The organization must further a religious, charitable, scientific, literary, educational, public safety, amateur sports or cruelty prevention purpose to qualify for tax-exempt status; it must also provide a public benefit. Examples of nonprofit organizations include churches, hospitals and schools.

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