Non-profit organizations can certainly earn money, even a profit – but they must be careful in how they make and spend that money.
Some people have a mistaken understanding of what a nonprofit is and can do. Non-profit organizations can certainly make money – to pay for operating costs like staff salaries, rent, insurance, materials and supplies, advertising, and any additional expenses involved in providing their services to the community. Without money, most non-profit organizations simply could not afford to exist.
Most non-profits rely at least partially on donations from individuals and corporations, as well as grants from government and foundations to offset their operating costs. However, most nonprofit organizations also earn money directly, through mechanisms such as membership dues, fees-for-service, or thrift shops. Nonprofits can even make more money than they need for operating expenses. However, non-profits are limited in how these profits can be made and spent. These guidelines apply to all 501(c) organizations:
- Any profits made must go back to the organization and be used to fulfill its tax-exempt purpose. Profits cannot be distributed to staff (other than in the form of their regular pay), board members, or any individuals affiliated with the organization. Non-profits can have no owner shareholders who benefit from surplus revenues.
- Unrelated business income (UBI) must be reported to the IRS and is subject to taxation. This is true even if the money made from the unrelated business is used wholly to help pay for the non-profit’s expenses.
- If the UBI becomes “excessive” with respect to how much related business income the non-profit is making, the organization could lose its tax-exempt status.
