A Non-Profit Corporation is an organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization’s shareholders (or equivalents) as profit or dividends. The main purpose of such a corporation is to pursue goals that are beneficial to the public.
While Nonprofit corporations are allowed to generate profits, its profits must be used to preserve the existence and expansion of the corporation. If a Non-profit corporation is classified correctly, they are exempt from federal, sales, and property taxes – and may also be exempt from paying employee taxes as well. It is important to note that Non-Profits can be taxed if they make money from activities not related to their main purpose.
In order to be recognized as a nonprofit by the IRS, the Non-profit corporation must file and obtain the appropriate 501(c)3 classification in order to receive the desired tax treatment.