Individuals working for a nonprofit organization do often make a personal profit through their salaries, as many nonprofits have full-time employees who are paid like at other types of businesses. Nonprofits are established to serve a government-approved purpose and are accorded special tax treatment. Unlike other forms of business, they are not designed to make profit for shareholders or owners. The profit of a nonprofit is taxed according to whether the profit was generated from activities that are unrelated or related to the purpose of the organization.
Much like a normal business, nonprofits need to cover operating costs and pay employees. At times, profits may exceed the calculated expenses, which in turn result in a profit for the organization. The method by which it generates profits is tremendously significant, as any profit that is generated through unrelated activities will be taxed. For example, a nonprofit organization that collects and repairs toys and donates them to kids might generate income through charity dinners, fundraisers and raffles. The income generated from these activities then can be used to pay operational and employee expenses tax-free. These activities are considered related to the nonprofit's mission of providing toys to kids.
Nonprofits at times earn money through activities unrelated to their mission. In this case, the nonprofit must pay taxes on the profits earned just like a normal business. Nonprofits should keep profits from unrelated activities to a minimum to avoid losing their tax-exempt status. Non-profits should also avoid spending staff time on unrelated activities, and must never hire someone to work on unrelated activities. If the same nonprofit that collects toys decides to own its own facility for hosting charity events to reduce costs, and rents the space for other events to earn rental income, this type of profit will be taxed as normal business income, because it is unrelated to its primary mission.
Exempt Unrelated Activities
Distinguishing related from unrelated activities can be difficult, so the IRS created a list of activities that are tax-exempt, even if they are unrelated to the nonprofit's mission. These include profits made from sales of donated merchandise; distribution of items worth less than $5 for donations; and activities primarily benefiting patients, students, officers, members or employees of the nonprofit. Activities that involve work mostly done by volunteers are also tax-exempt. All other unrelated activities that generate profits are not tax-exempt.
Nonprofit Full-Time Employee Earnings
The U.S. Bureau of Labor Statistics reported the average hourly earnings for full-time nonprofit workers were $21.68 in 2007. This was actually higher than the average hourly rate of full-time employees working for a private industry during the same year. The BLS reported that overall full-time nonprofit employees earned more than those in a private industry. While the name nonprofit might be a turn-off to people looking for work, they actually might personally profit more by working for a nonprofit organization.
Chris Newton has worked as a professional writer since 2001. He spent two years writing software specifications then spent three years as a technical writer for Microsoft before turning to copywriting for software and e-commerce companies. He holds a Bachelor of Arts in English and creative writing from the University of Colorado.