Everyone has a type, nonprofits are no different.
Much like dating, finding the right nonprofit to donate to, work for, or volunteer for can be tricky at first. You’ve already found the answer to life's most burning question – what is a nonprofit, anyway? But that likely only leads to dozens of other questions.
What types of nonprofits are there? How are they different? And which ones allow you to count charitable contributions? No need to worry, this article will outline everything you need to know about the five most common nonprofit types.
If you're looking for information about a specific type of nonprofit, use the links below to jump ahead:
What are the most common types of nonprofits?
While this article only covers the five most common types of nonprofits, it’s important to note that the IRS counts 27 different nonprofits types on their official website. You can click this link to find information on the nonprofits not covered by this piece.
|Note: All information about charitable deductions has been pulled from IRS Publication 557 pages 68-70. You can find more in-depth explanations about the tax-exemption rules each of the nonprofits listed below.|
501(c)(3) - charitable organizations
When people think of a nonprofit organization, they are usually thinking of a 501(c)(3). Commonly known as “true nonprofits” by those who work in the industry, a 501(c)(3) is a charitable organization and receives IRS tax exemption status.
501(c)(3) charities are the most popular type of nonprofit. There are more than 1.5 million registered charitable organizations in the United States. 501(c)(3) organizations are funded primarily through charitable donations and government grants.
|Can you deduct your charitable contributions to 501(c)(3) organizations on your taxes? Yes|
501(c)(4) - civic leagues and social welfare organizations
The main distinction between 501(c)(3) and 501(c)(4) organizations isn’t as large as you might imagine. In practice, 501(c)(3) organizations and 501(c)(4) organizations operate in almost the exact same way. They promote philanthropy and positive change through their work and mission.
|The primary difference between a 501(c)(3) and a 501(c)(4) is their ability to lobby and participate in influencing politics.|
501(c)(4) charities are allowed to freely participate in lobbying efforts that might help pass or repeal legislation. They are also allowed to publicly endorse and promote legislation in order to gain support.
While 501(c)(3)’s are technically permitted to participate in lobbying, the rules are much stricter. They are only allowed to allocate about 10% of their total operating budget on lobbying and any violation of those rules could result in a 501(c)(3) being stripped of their nonprofit status.
For organizations that find themselves more heavily involved in politics, the 501(c)(4) label is more fitting than 501(c)(3).
|Can you deduct your charitable contributions to 501(c)(4) organizations on your taxes? Generally, no. But there are always exceptions.|
Social advocacy groups
Social advocacy groups are a type of 501(c)(4) with a primary focus of lobbying and promoting social or political change. Much like the other nonprofits listed above, they promote a certain cause through education and fundraising.
There is a lot of overlap between social advocacy groups and social welfare organizations, and although they are both considered 501(c)(4) organizations, there are some key differences.
|The main difference between a social welfare organization and a social advocacy group is whether they focus on lobbying and political influence as their primary driving force for creating change.|
Social welfare organizations work to promote social change through fundraising and public awareness. While a social welfare group can lobby for laws to be passed, that is not their primary focus when it comes to creating change.
Examples of social welfare organizations include groups like volunteer fire departments or The Military Order of the Purple Heart Service Foundation.
Social advocacy groups also work to promote social change through fundraising and public awareness. However, their primary means of doing this is through lobbying and political change. They make no apologies for being proactively involved in legislation, as it is their primary focus in advancing change.
Examples of social advocacy groups include organizations like the NAACP, Planned Parenthood, and the ACLU.
Another key difference between social advocacy groups and social welfare organizations rests in how they raise money. Social advocacy groups rely heavily on membership dues to help supplement the money they receive from public donations.
|Can you deduct your charitable contributions to social advocacy groups on your taxes? Generally, no. But there are always exceptions.|
Private charitable foundations
A private charitable foundation is a privately owned nonprofit established to address global concerns such as education, medical research, environmental issues, and more.
|The main difference between a private charitable foundation and a public charity is in the management and fundraising structure.|
Private charitable foundations are normally established by a single wealthy benefactor or business and are used to grant money to smaller, more niche nonprofits. The money generated by private charitable foundations are not publicly fundraised, but rather contributed by and invested under the guidance of the individual who created the foundation.
Think of private charitable foundations as the angel investors of the nonprofit world. One day they might invest money into research for cancer, and then two days later pour money into an initiative to promote women in STEM. The only stipulation is that the initiatives these private charitable foundations donate to must be other 501(c)(3) charities.
According to WorldAtlas, these are the top five wealthiest charitable foundations worldwide, based on the size of their endowment.
|Organization Name||Endowment (Billions, USD)|
|Bill & Melinda Gates Foundation||$4.2 billion|
|Stichting INGKA Foundation||$34.6 billion|
|Wellcome Trust||$26 billion|
|Howard Hughes Medical Institute||$18.2 billion|
|Ford Foundation||$11.2 billion|
The autonomy with which private charitable foundations are allowed to operate are both their greatest strength and their biggest point of criticism. Because a private charitable foundation can donate money to whichever cause they deem most worthy, money may be spent in areas where the market is already flooded with donations.
|Can private charitable foundations deduct their charitable contributions on their taxes? Yes, but only up to a certain amount.|
Corporate giving programs
Okay, we cheated a little bit with this last one. While not technically considered a nonprofit, corporate giving programs are on the rise in the nonprofit sector. Corporate giving programs are the philanthropic arm of a business used to donate to charity on behalf of the organization.
|The difference between a corporate giving program and a private charitable foundation is simply that a private charitable foundation is a registered nonprofit and a corporate giving program is not.|
Corporate giving is like a lot like individual donations but on a larger scale. Oftentimes, corporate giving programs will employ a donation match that their employees can take advantage of, as well as an option for employees to take volunteer days off from work.
While corporate social programs may seem like a relatively new employee benefit, they are quickly rising in popularity amongst businesses.
According to research by NPSource:
A perfect example of corporate giving is our own G2 Gives. While G2 Gives is not a nonprofit itself, it does exclusively partner with and donate money to 501(3)(c) charities. Director of G2 Gives, Ellen McElligott, shares her thoughts on why more businesses are getting behind this movement.
|Can corporations deduct their charitable contributions on their taxes? Yes, but there are limitations to what can be deducted.|
We’ve just scratched the surface...
There’s a lot more to know about nonprofits beyond the different types. If you’re looking for more nonprofit related content, scroll to the bottom of the page and subscribe to the G2 Learning Hub newsletter to receive weekly updates as new articles get posted.
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