Nonprofit vs. not-for-profit: How to tell them apart

What's the difference between a nonprofit and a not-for-profit? Are they the same thing? 

While they're often used interchangeably, nonprofits and not-for-profits are actually two distinct types of organizations. Each has its own organizational structure, goals, and ways of supporting its employees. Plus, they're viewed as two distinct groups by the IRS (Internal Revenue Service), which offers each its own unique code to achieve tax-exempt status.

Whether you're looking to start your own nonprofit, filing for tax-exempt status, or making a donation to a nonprofit organization, it's helpful to know the differences between a nonprofit and a not-for-profit. Below, we dive into the nonprofit vs. not-for-profit debate, offering a clear depiction of both organizations. 

What is a nonprofit organization? 

A nonprofit organization (NPO) is an organization that raises money in order to accomplish its mission.

Nonprofits are created with the sole purpose of bettering the world and the communities we live in—whether it's through offering people food and shelter, advancing the arts and sciences, combating climate change, or fighting for social causes and justice.

Nonprofits try to accomplish these objectives through various fundraising efforts, which supporters are able to write off on their taxes.

According to CauseIQ, there were more than 1.8 million IRS-registered tax-exempt organizations in the United States in 2020. Surprisingly enough, Congress has created more than 30 types of tax-exempt organizations, each within different sections of the tax code. Some of the most well-known include: 

• Section 501(c)(4): These include social welfare organizations, homeowners associations, and volunteer firefighter organizations.
• Section 501(c)(5): This section is made up entirely of labor unions. 
• Section 501(k): This includes child care organizations.
• Section 501(c)(3): Finally, the most common type of organization within the United States code falls under "charities," which includes most charitable nonprofits, private foundations, trusts, and religious groups.

While a nonprofit cannot raise money to benefit the special interests of one, single member, it does aim to raise funds—similar to a for-profit company. These funds help to cover operational costs and the payroll of its full-time staff, who support its mission. 

What is a not-for-profit organization? 

A not-for-profit (NFPO) is an organization that, like a nonprofit, doesn’t seek to turn a profit.

However, unlike a nonprofit, a not-for-profit doesn't have to exist for the sole purpose of improving society. 

While a nonprofit exists for a specific charitable purpose, a not-for-profit can exist to benefit the interests of its members. For example, imagine an intramural sports club. An amateur running club may raise funds to cover race entry fees, pay for gas or even airline miles to travel for races, or even host its own holiday party. These costs could be paid through a fundraiser (such as sponsoring a 5k race), but they're mostly paid through fees and dues of its members.

While a not-for-profit organization can apply for tax-exempt status from the IRS, thereby sparing them from paying sales tax and/or property tax, it's a slightly different process than for 501(c)(3) nonprofit charities (more on this below). 

Nonprofit vs. not-for-profit: Pinpointing 4 key differences 

While nonprofits and not-for-profits are often confused, there are a few key differences between the two. Below, we help distinguish a nonprofit vs. not-for-profit:

1. Differences in purpose 💪

One of the primary differences between nonprofits and not-for-profits comes down to their mission. 

Charitable organizations exist to do good, for the sole purpose of providing a public benefit. Nonprofits are founded to keep people within our communities safe, healthy, and well fed, to protect our environment and the species that live in it, or to advance public safety, creating a future for the children in our communities.

Not-for-profits, on the other hand, can exist for pure enjoyment of its members. A NFPO can be a sports team, social club, trade organization, college social club (like fraternities and sororities), or a social advocacy group. 

2. Differences in goals and objectives 🏆

Each year, a nonprofit will (hopefully) develop a strategic plan to help set goals for the next 12 months, 5 years, or even 10 years down the road. While some of these goals may tie in with their fundraising efforts, they’re more likely to correlate with the organization's mission. For example, they may set a goal to feed more families, help more low-income students apply for a four-year university, or lobby for new bills to combat climate change.

Conversely, a not-for-profit will likely set goals that serve their personal interests. For example, a fraternity may set a goal to recruit 20 more freshmen to join their organization. Or, a soccer league will aim to raise funds to attend an out-of-state tournament. 

3. Differences in staff and organizational hierarchy 👯

A nonprofit will require an employed staff to accomplish its mission. As a startup, it might rely on founders and a group of volunteers to accomplish its goals. However, as it scales, it will need full-time staff, a board of directors, and an executive team.

A not-for-profit runs completely on the backs of volunteers. There are no paid staff—instead, people simply volunteer their time for the sake of the organization. 

4. Differences in nonprofit status 📝

When it comes to filing with the IRS, there are several similarities between nonprofits and not-for-profits. For example, both types of organizations will need to follow similar steps to achieve tax-exempt status, such as documenting their articles of incorporation, establishing their bylaws, creating a bank account, and getting an EIN number.

There are several key differences between nonprofits and not-for-profits under the Internal Revenue Code. For example, while most charitable organizations will be filed under section 501(c)(3), you'll find many not-for-profit organizations filed as "social clubs" under 501(c)(7). 

A 501(c)(7) has strict guidelines as to how it can raise funds to cover operational costs and other expenses. For example, only 35% of its income can come from outside member dues—and those other sources of income could be subject to federal income taxes. Lastly, contributions to a not-for-profit, unlike a nonprofit, are not tax deductible (in other words, a sorority member could not write off her member dues on her federal income taxes). 

Nonprofits vs. not-for-profits are two distinct entities, with distinct goals

Nonprofits and not-for-profit organizations are often confused, but are two separate types of organizations.

While a nonprofit exists for the sole sake of bettering society, a not-for-profit could serve the interests of its members.

And while both can file for tax-exempt status, a nonprofit will accomplish its mission with a fully employed team, while a not-for-profit is led by volunteers.

Whether you're a NPO or a NFPO, here's a piece of good news: You can raise money to help accomplish your objectives on Givebutter. Givebutter is the all-in-one, donor-first fundraising platform that helps organizations of all types—including nonprofits, Greek life, social clubs, sports teams, and religious groups—raise funds to help support their cause. With a built-in CRM platform, marketing automation, and 130+ fundraising tools at your fingertips, Givebutter has everything you need to help accomplish your goals.

Ready to see how Givebutter can help advance your organization? Launch your free account to get started.