What’s really the difference between a nonprofit and a not-for-profit? As the Wall Street Journal Buy Side explains, the answer is more nuanced than the names suggest—and understanding an organization’s tax-exempt status may be more important than what it calls itself.
Tracy Green Landauer, Partner and Private Client Services Practice Chair at CM Law, shared her insights in the Journal’s recent guide, “Nonprofit vs. Not-for-Profit: What’s the Difference?”
As Landauer explains, a general distinction exists between organizations that are charitably oriented and those that are not. Charitable organizations generally fall under Section 501(c)(3) of the Internal Revenue Code, which can provide tax-exempt status to the organization and, importantly for donors, allow contributions to qualify for a charitable tax deduction.
The terminology, however, can be slippery. “Nonprofit” and “not-for-profit” are often used interchangeably, while the Internal Revenue Code provides a much more precise way to understand an organization: its specific tax-exempt classification.
That distinction can matter when it comes to charitable giving. Donations to 501(c)(3) organizations are generally tax-deductible, while contributions to other types of tax-exempt organizations may be subject to different rules.
The article also addresses a few common misconceptions—including the idea that nonprofits can’t make money. They can. The important distinction is what happens to those profits: rather than being distributed to owners or shareholders, they are generally reinvested to advance the organization’s mission.
For donors, organizations and families engaged in philanthropy, the takeaway is simple: don’t rely on the label. Look at the tax status and understand the rules that apply.
If you have questions about how the distinctions between nonprofits and not-for-profits affect your philanthropic strategy, you can connect with Tracy directly at tlandauer@cm.law.
CM Law (cm.law) – formerly Culhane Meadows – is the largest national, full-service, women-owned & managed (WBE) law firm in the United States. Designed to provide experienced attorneys with an optimal way to practice sophisticated law while maintaining a superior work/life balance, the firm offers fully remote work options, a transparent, merit and math-based compensation structure, and a collaborative culture. Serving a diverse clientele—from individuals and small businesses to over 40 Fortune-ranked companies—CM Law is committed to delivering exceptional legal services across a broad spectrum of industries.
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