Charitable organizations may advance education, support the arts, protect the environment, provide disaster relief, or defend human rights. Their mission takes priority over distributing profits to owners. However, they still need dependable income to pay wages, maintain facilities, and carry out their work.
In the United States, an eligible organization may apply to the Internal Revenue Service (IRS) for tax-exempt status. The application describes the organization’s mission and activities. Tax-exempt status generally means that qualifying operating profits are not subject to federal income tax; it does not mean the organization has no expenses or never has to meet tax and reporting requirements.
All flashcards
What are program services?
They are an organization’s basic offerings that generate revenue, such as museum admissions, classes, or tours. Their income may not cover all operating expenses.
What is a donation?
A financial gift given without an expectation of repayment or receiving something directly in return. Donors contribute to support an organization or its mission.
What is a grant?
Funding awarded by a government agency or charitable organization, usually for a specified purpose. Grants generally do not need repayment but may involve competitive applications and reporting requirements.
What does tax-exempt status mean?
For an eligible organization, qualifying operating profits are generally not subject to federal income tax. The organization must apply, and tax-exempt status does not remove its expenses or all compliance duties.
What is social entrepreneurship?
It is an approach that combines a business model with an effort to address a societal problem, using revenue-generating products or services to support positive change.
Quiz questions
A government agency awards a nonprofit funds for medical research and requires reports on their use. What type of funding is this?Answer: A grant restricted to a specified purpose.
In an all-or-nothing crowdfunding campaign, what happens if the campaign misses its goal by the deadline?Answer: The project does not receive the pledged funds.
What must an eligible organization do to obtain federal tax-exempt status in the United States?Answer: Apply to the Internal Revenue Service.
How can vendor credit help a startup manage cash outflows?Answer: It allows payment to a supplier after an agreed period.
Why should an entrepreneur not treat a grant as guaranteed income?Answer: The application may be competitive, and the award is uncertain.
Based on Entrepreneurship by Michael Laverty, Chris Littel (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.