The word ‘nonprofit’ can be used to represent a number of different kinds of charitable organizations. The two main kinds of nonprofits, or 501(c)(3) organizations, are public charities and private foundations, which mostly differ in where their money comes from and what tax category they fall under according to the IRS. Public charities will file Form 990 while private foundations file Form 990-PF, but there are a few important distinctions between the two entities that determine how the raise money, and who they give it to.
A public charity actively fundraises and receives donations from a variety of sources, which can include private citizens, government agencies, corporations, private foundations, or even other public charities. Public charities can seek to help people in a variety of ways for a number of reasons and can even include large organizations like churches, universities, hospitals, and medical research groups.
To qualify as a public charity, the organization in question must either derive a substantial amount of its financial support from the public or work to support another public charity, making it a ‘supporting organization’ that typically survives financially off of the charity that it supports. A donation to a public charity is tax deductible.
Private foundations are not quite as straightforward as public charities. First of all, though contributions are tax deductible as well, many private foundations don’t accept public donations. Instead of public donations, many function off of endowments, while others invest their initial funding and then donate whatever profits they return from these investments to a charitable cause. In short, private foundations usually do the work when it comes to raising money but then donate the money to a different charity that will figure out how to use the money in a charitable way.
There are two different types of private foundations in the eyes of the IRS: private nonoperating foundations and private operating foundations. Private nonoperating foundations are more common and function by providing money for other charitable organizations. A private operating foundation provides money to charitable organizations that it owns itself. Both types of private foundations must donate about 5% of their income to charitable organizations.
Running a private foundation is a bit trickier than a public charity because of the various restrictions enforced by the IRS and other federal government agencies. They cannot do business with their major contributors, they may need to pay specific taxes on certain goods, and they can get in trouble for various corrupt practices like self-dealing, making risky investments, and for failing to meet the quota or donated funds to charitable endeavors, among other regulations.
The Givebutter Platform
Public charities and private foundations are the main ways to directly raise large amounts of money for charitable causes. But crowdfunding has become a popular alternative for people who want to give to causes they care about. Givebutter is not a charity or foundation but rather functions as a platform for private citizens, communities, and school organizations who need help organizing their fundraising efforts. To learn more about how to give better, visit givebutter.com.