Non-profit organizations are given certain advantages regarding tax deductions. So, it makes sense that there are many non-profit organizations in existence today. In fact, there are over 1.5 million of them in the United States.
But, not every non-profit organization is created equal.
Ultimately, non-profit organizations can be classified as public charities and private foundations. Both have certain advantages and disadvantages. But, it’s important to first understand the difference between public charity vs private foundation definitions.
What is a Public Charity
A public charity is a non-profit organization that is exempt from federal income tax under Section 501(c)(3). This is based on the Internal Revenue Code. These public charities are also known as charitable organizations.
A public charity is a charitable organization that has met the requirements of the Internal Revenue Service (IRS). They are eligible to receive tax-deductible contributions from the public. Public charities like theseΒ best charities in Australia are usually organized and operated for:
- religious
- educational
- scientific
- charitable purposes
What is a Private Foundation
A private foundation is a nongovernmental, nonprofit organization with a principal fund β or endowment β from which it makes grants to:
- individuals
- other nonprofits
- for-profit organizations
A private foundation is typically controlled by its founders or by a small group of individuals, often family members, who influence its activities and decisions.
How is Public Charity Vs Private Foundation Different?
Let’s spot the difference between these two organizations.
Exemptions
Public charities are typically exempt from federal income tax under Internal Revenue Code (IRC) section 501(c)(3). Private foundations are not automatically tax-exempt and must apply for recognition of exemption.
Requirements
Public charities are required to file Form 990. This is the Return of Organization Exempt From Income Tax, with the IRS.
Private foundations are required to file Form 990-PF. This is the Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
Support Sources
The major difference between public charities and private foundations is that public charities are supported by many different sources, including the general public. Whereas, private foundations are typically funded by:
- a single individual
- family
- corporation
The Common Goals
Public charity and a private foundation have a common goal which is to help the community by supporting specific causes. They do this by providing financial assistance to programs or individuals that are working towards their goals. Both types of organizations are tax-exempt and raise funds through donations.
Both types of organizations are 501(c)(3) entities. This means that they are exempt from federal income tax. Both types of organizations can receive tax-deductible contributions from:
- individuals
- businesses
- other organizations
And both types of organizations must use their assets and income solely for charitable purposes.
Know the Difference Between Public Charity vs Private Foundation
There is a big difference between a public charity and a private foundation. A public charity is a type of nonprofit organization that is considered to be a public benefit. A private foundation, on the other hand, is a type of nonprofit organization that is created by an individual, a family, or a corporation.
If you are thinking about donating to a nonprofit organization, it is important to know the difference between these two types of organizations.
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