People wishing to make contributions to others frequently face the dilemma of which organization to select. Here are descriptions of the differences among them:
Provided tax-exempt status[(501(c)(3)]by the Internal Revenue Service, charitable organizations can be either public charities or private foundations. A public charity is an altruistic organization involved in religious, educational, and literary endeavors. It may also be concerned with the prevention of child abuse, as well as cruelty to animals. Public charities often sponsor local and international amateur sports events and competitions, scientific operations and activities, and testing for public safety.
Representing the largest share of active, 501(c)(3) organizations, public charities have some advantages over private foundations:
- They have higher donor giving limits that are tax-deductible.
- They can draw support from both private foundations and other public charities.
- They have three possible tax filing requirements, depending upon their financial intake for the year. But, private charities must always file Form 990, a complex and lengthy tax form.
The idea behind a nonprofit is that the designated mission is the sole beneficiary of any funds donated, membership dues, business activities, or fundraisers. Any extra money a nonprofit raises doesn’t go to the employees. While employees of a nonprofit still receive a salary, they would not benefit from excess funds – that money goes directly to the nonprofit’s stated mission.
Nonprofit organizations are foundations that usually begin with a single donation from a business or an individual. Rather than funding its operations primarily through donations, nonprofits raise money through fees for services and the sale of products. It then disburses yearly much of its investment income to charitable activities that it supports.
These nonprofit organizations sometimes qualify for exemption from the payment of income tax; however, they are usually not able to offer charitable donation receipts to donors because tax-deductible donations are limited to 501(c)(3) organizations and other limited situations.
Private foundations, like public foundations, are nonprofit organizations. They are managed by their directors or trustees. Private foundations generate income from the initial donation and disburse yearly donations to selected charitable activities. They provide grants to other charities rather than operating their own, and they will fund specific programs or organizations’ operating expenses. Additionally, they provide grants to individuals who follow IRS rules requiring a private foundation to benefit the public just as a public charity does. By doing so, the private foundation can maintain its tax-exempt status.
Often started by an individual or a business in memory of an individual, the organization gives to causes that adhere to Section 501(c)(3)of the Internal Revenue Code. Such causes advance education, support and build communities in need, and provide relief for the poor.