Frequently Asked Questions
What is a nonprofit organization and how is it organized for legal and financial issues?
A Non-Profit Organization (NPO) is a legal entity that operates without the intention of making a profit. It is organized in a way that allows it to enjoy tax benefits, similar to a corporation, but without shareholders. NPOs can choose to incorporate, which gives them federal tax-exempt status, or they can opt not to incorporate, which means they will have to report deductions, income, and losses. However, non-incorporated NPOs miss out on the opportunity to apply for grant money, property tax exemptions, and the ability to receive tax-deductible donations. To handle legal and financial issues, every NPO needs an Employer Identification Number (EIN), also known as a Federal Tax Identification Number or Federal Employer Identification Number. This number, issued by the IRS, is used for all legal activities of the organization, including hiring employees, opening bank accounts, filing tax forms, and applying for business licenses. It is similar to a Social Security number and is essential when forming a nonprofit.
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