Harrington Group Blog

Accountants are professionally trained to help others manage money. So, it’s safe to say there are some wonderful financial habits to be learned from those who have chosen this career path. Now, we may be tooting our own horns here but we’re okay with that. We’ve gathered some of the best financial tips from the Harrington Group team members to share with you. So, if you’re ready to get your finances in order and have your money working for you, try adopting some of these healthy habits TODAY!

BUDGET BUDGET BUDGET

Managing your money without a budget is like cleaning a house in the dark. You can’t really see what’s going on and you may or may not be making an impact. It’s not completely worthless but it’s definitely not going to end up in optimal condition. Creating a monthly budget is like shining the lights on your spending and the breakdown of what happens with your money.

A budget is all about wants verses needs. Once you understand exactly how much “extra” money you can allot to things like eating out at restaurants, buying clothes, purchasing tickets to concerts, or engaging in any other recreational activities that cost money, you can combat the common issue of overspending on things that you “want” but don’t “need”. You should prioritize paying bills, getting gas, buying groceries, and saving some extra funds for unexpected expenses such as car troubles or medical bills.

COMBAT IMPULSE PURCHASES

An accountant is always cautious about expenditure that wasn’t budgeted for. A budget should help tackle the financial downfall that is impulse purchases, but it may not be enough. As humans living in a heavy consumer society, we are constantly bombarded with advertisements that act as temptation to spend (unnecessary) money. We get an urge that feels much like an itch, to buy something that we didn’t even know we wanted, until the second it is presented to us. So, how can you stop yourself from giving in to these urges??

Try setting up a procedure for yourself to follow each time you get the urge to impulse buy. A good rule of thumb is to wait it out. How about 24 or 48 hours to think about your potential purchase? This should allow enough time to let the initial allure ware off, so that you may come back down to earth. After your waiting period, if that purchase is still on your mind and feels equally as important as the initial urge, then go for it. As exciting as a purchase can feel in the moment, it can frequently turn out to not be all that important.

OUTSIDE ACCOUNTABILITY

An accountant’s job is to work with people and/or businesses to help manage their money and keep them on a good track. This outside accountability works for a reason. A budget is a wonderful place to start. However, the issue with budgeting is that it relies on individual accountability, and no one is perfect. In the same way that we hire personal trainers or link up with work out buddies to keep our physical fitness on track, we can benefit from hiring an accountant or using the buddy system to keep our finances in check. If you are not in a place where you can afford an accountant, try using to this buddy system to secure a source of outside accountability. This person could be your significant other, a close friend, a family member or even a business partner. You share financial information with each other, run large purchases or impulse purchases by one another before pulling the trigger and generally watch over the other person’s financial goals to make sure they are moving towards them. Sharing the excitement of getting closer to your financial goals with someone you are reciprocally supporting is a big motivational factor.

AUTOMATE YOUR FINANCES

Do you often forget to pay your bills on time? Do you get hit with late fees, even if it’s just a little here and a little there? These can add up over time! Enabling automatic bill pay for monthly recurring bills came be a game changer. We all have hundreds (at least) of small decisions to make each day and so many things to keep track of. Give yourself a break and take this task off your plate. It’s one less thing to think about and it saves you money on pesky late fees.

USE CREDIT WISELY

Credit cards are a double-edged sword. You may think, don’t I need to use credit cards to build my credit score? To a certain extent, yes. Although your score will also be built in other ways – paying off a car loan, paying off student loans, paying your bills on time, etc. Responsible credit card use will benefit you, but it must be managed wisely. Keep it to a minimum. Maybe you only have one credit card. You pay it off ever month and don’t use it for big purchases that you know you cannot pay off. Avoid racking up high-interest debt by avoiding purchases that you can’t financially handle in the moment.

Even better, switch from credit to debit. Debit cards have a natural stopping point for your spending. A more realistic sense of finances. When your account runs out of money, that’s it!

START INVESTING

Does your money just sit in your bank account(s) every month, doing nothing for you or your future? You would benefit from taking care of your future self by investing for retirement and other future needs. Many employers will offer employees a match on their contributions to an employer-sponsored retirement plan. If this isn’t an option for you, you should still be investing. Open up on IRA or Roth IRA and make contributions regularly.

Here at Harrington Group, we see ourselves as a little family unit. We each play our own role and we come together as a strong team. This week, we are shining the spotlight on managing partner Sean Cain.

Sean came to California from New Jersey at the age of 13. He and his 3 siblings were raised by a single mother, instilling in Sean an energetic work ethic, as well as a healthy ambition and a strong commitment to family from an early age.

This work ethic came into play as he put himself through a California State University to earn a degree. Soon after, he began working for the United Way in San Bernardino, California and then earned his CPA license at Harrington Group. Sean joined the company in 1996 and was invited into partnership at the age of 33 by his mentor and firm namesake, Joe Harrington. After joined the company, Sean has never looked back. His steadfast belief in the firm’s core values of “knowledge, service and respect” has catapulted him into a position of value to all of the clients who receive his service.

Sean is a member of the American Institute of Certified Public Accountants (AICPA). He is also a proud member of the Pasadena Rotary Club, where he serves on a number of committees and was selected as the incoming treasurer for 2014/2015.

In addition to Sean’s professional commitments, he is a devoted husband and father. With 2 growing teenage boys, family days are spent camping in the desert, zooming through sand dunes or some other weekend adventure. Luckily, Sean’s love of cars and motorcycles is shared by his boys and sanctioned (most of the time) by his lovely wife.

Sean is proud to work exclusively for the nonprofit sector and for clients who serve their communities every day. Sean’s expertise in auditing and consulting works in concert with his passion for service to those who do for others.

Although the absolute necessity of virtual events is starting to slow down as we continue to move forward from the pandemic, there will always be a place for virtual events in the world to come. The convenience of attending an event from the comfort of your home is almost too good to pass up. In addition, the lower overhead costs that go into hosting virtual events is also a big pull for organizations to continue incorporating them.

Does your nonprofit organization have an interest in hosting virtual fundraisers? Have you started implementing them due to the restrictions of the pandemic and realized that you want to keep them in the mix? Either way, we have some tips for you on the logistics of these web-based events and how to maximize your success.

1. Put Effort into the Invite Process

You’re hosting a virtual event so logically you would just send an e-vite and be done with it, right? Wrong. Even though you will need to send electronic invitations and reminders with direct links to your live stream, you also want to entice more people to attend by reaching out in different ways.

Think of how you can make the invite process more personalized. Perhaps you put together a list of donors who have supported you in the past and make direct calls. You can also send a beautifully designed post card or invite in the mail. Or just a letter reminding donors of your virtual event and directing them to an online RSVP location. Making multiple points on contact and addressing your donors by name will make them feel more connected to your cause.

Make sure to also post links to your event all over your organization’s social media platforms. Give teasers to any speakers or presentations that may be taking place during your virtual fundraiser. Reach out to any participants and ask them to re-post on their platforms to widen your reach.

2. Choose a Streaming Platform

A big step in hosting a virtual event is making sure you have the correct software and setup to do so. Appoint one or more team members to look into software options, as well as streaming platform options and do a compare and contrast. With the increase in digitally hosted events over the past year and a half, there is also in increase in available information on the topic. If it is within budget, you can also outsource this to a vendor who specializes in this technology and have them help you get everything set up, as well as give tutorials so you may be proficient with the process before the date of your event.

3. Secure Sponsors

Just because your event is virtual, doesn’t mean you should treat it much differently. You will still want to secure sponsors for your fundraiser so that you can offset the costs of hosting. You may find that some of your usual sponsors have been hit hard by the pandemic. Fortunately, there are plenty of others who have continued to thrive and have been looking to increase their philanthropy in a time with the world really needs it. Cast a wide net throughout the connections of your employees, volunteers, donors and all of those who are in the circle of your nonprofit organization.

4. Focus on Production Quality

Again, you will want to treat your virtual fundraising event as if it were still an in-person scenario. Quality of production should not suffer and actually should have even more emphasis. Cohesive graphic design, smooth transitions, hosting and overall glitz and glam should be a focal point of your planning process. You want to grab your audience through the screen.

Ensure that you host a dress rehearsal before the actual date of your event to work out any kinks, such as tech logistics, lighting, camera angles, sound etc.

5. Speak with a Purpose

Ensure that you are not supporting the concept that a virtual fundraiser might feel less formal than an in-person event. You want to keep your audience engaged in your mission and your cause. Speak with a purpose and ensure that you convey gratitude towards your donors, letting them know how much their contributions (big and small) mean to your organization and to your overall cause. You can use actual dollar amounts to communicate this message – as little as $5 can accomplish …showing the donor the power of their money.

Throughout your event, speak about the accomplishments of your organization. How many people have you helped? How have you served the community? Keep your attendees emotionally invested in your organization.

6. Keep it Interesting

The last thing you want is a boring event. Due to the lack of in-person interaction, you will want to ensure that your virtual event is engaging and that it doesn’t drag on. Depending on the number of speakers/presentations and the overall layout of your event, you may want to aim for anywhere between 45 minutes to a few hours. If it’s packed with engaging information and attention-grabbing content, you can get away with a few hours. If you have less information to get across, stick to a shorter event to ensure the best impact.

Incorporate fun transitions, perhaps a comedy-based host, a theme….anything your organization can think of to keep your virtual fundraising event entertaining and enjoyable.

7. Say Thank You

Live streaming an event allows you to reach our audience on camera and express your gratitude directly to your donors and supporters.

Flash names up on your screen of big donors an anyone you want to thank. Maybe email out a graphic with a full list of donor names. Any way that you can make your supporters feel special and appreciated will do you good.

Like any other business, running a nonprofit requires that you annually prepare and submit paperwork. You need to submit to your employees, your Board of Directors, the Social Security Administration and the IRS. Each year, you should also take the time to evaluate your organization and its progress. Take a look at your successes and your failures, go over a strategic plan for the year to come and just do an overall wellness check. This annual wellness check helps to keep things moving, in addition to fulfilling business requirements.

• CPA Audit

Contact a CPA to audit your financial statements. Accuracy is very important, especially for maintaining tax-exempt status of your nonprofit organization. Having audited records is ensuring the validity of your finances and adds an additional level of credibility. Contact us today if you need help!

• Form 990

As a not-for-profit organization, the government monitors your financial activity to ensure you are adhering to guidelines that allow you to keep your tax-exempt status. In order to keep them informed, each year you must submit the form 990 (an annual information report) to the IRS. This form lays out all the financial activities of your organization. It highlights your financial strengths and weaknesses, sources of income and how you’re spending money.

• Annual Payroll Reports

Submit annual payroll reports to the Social Security Administration, IRS and your employees. Form 941 is due no later than January 31. W-2s, W-3s and 1099s are important and must be accurate.

• Organize a financial plan for the year ahead

It is recommended that you look forward and plan out your next year. Organize a task force within your organization and assign them the duty of reviewing numbers and strategies. Have this team assess budget costs and do a benefit analysis of each line item.

• Organize goals for the year ahead

Goals can shift and change as your organization grows and evolves. Take an annual look at your progress, cross out goals that have been achieved and continue to develop new goals for the coming year(s). Bring up this adjusted goal list at your annual board meeting.

• Employee Appreciation

Maintaining a happy staff is just as important as maintaining financial security within your organization. A happy and developed staff are able to carry on the day to day and year to year practices smoothly. Take time to celebrate your staff each year for a job well done.

• Declutter your office

A tidy workplace is a productive workplace. Don’t hold on to old files and paperwork or any misc items that have gathered around your office. Take the time to annually (at the least) declutter your office and prep for a fresh start in the new year. Clearing clutter makes your job easier, saves time and increases productivity. It’s important to know where everything is and to be able to quickly access whatever you need, when you need it.

In life, all things are temporary. This includes the current appointed leadership within your nonprofit organization. Eventually, a leadership role must transition and if there is not an adequate succession plan in place before this happens, it may cause some waves within your organization. It’s best to have a comprehensive written succession plan in place. Seem overwhelming? Let us help! Check out these tips for a smooth transition:

1. Maintain a well-rounded team and train employees within. With a knowledgeable support staff in place, hiring for a leadership position can be much easier. Junior staff members who prove to be hard-working and capable should begin training for leadership roles ahead of time. Even if an outside hire is selected, this support staff can help to bridge the gap of transition.

2. In addition to a strong support staff, strengthening systems and procedures will also aid in a smooth leadership transition. Ensure these policies and procedures are well-documented, as well and being clear and concise. This organizational knowledge will be crucial for a new in-coming leader.

3. Evaluate your organization from the present moment. Is the out-going leader lacking in any areas? Are there qualities in a new leader that would benefit the growth of your nonprofit? Don’t assume that you should look for a new person with the same qualifications. A fresh set of skills and perspective can be beneficial.

4. Ensure that your succession plan accounts for sudden departure. How will you communicate this transition to clients, donors, your board, staff and even press? Planning ahead will allow this process to be well thought out, as opposed to feeling rushed. Consider having an appointed junior staff member who is skilled enough to bridge the gap during a sudden departure transition.

5. Lean on your advisory board. Boards are full of knowledgeable members who can act as strong resources to a nonprofit organization. They may have recommendations, advise and input during leadership transition. Make sure you maintain a strong board for this, as well as many other purposes.

6. Prioritize employee satisfaction. Having well-trained employees is useful in its own right but employee satisfaction is equally important. A happy staff is a helpful staff is a loyal staff. Building an environment where employees feel comfortable, appreciated and integrated is crucial for employee retention. This is a huge benefit when it comes to ensuring a smooth leadership transition. Teamwork!

Summer is often associated with fun in the sun! This makes it an ideal season for outdoor fundraising events and activities. Although, if not chosen carefully, a fun event can create a lot of joy without generating a lot of giving. So, how do you combine summer fun and charitable giving into an awesome event? We have some ideas!

• Games! Games! Games! This detail can be worked into many different types of events (BBQs, pool parties, wine tastings, etc). Games that require tickets are a great way to generate funds.
• Food Trucks. Incorporating food trucks into your event and requiring trucks to participate in the fundraising portion of the event will generate fundraising money. Ensure that you only bring on trucks who are willing to give a small percentage of their earnings towards your organization/charitable cause.
• Market for a cause-based fundraising event to generate interest prior to event date. This could include a walk-a-thon or marathon and should be targeted towards a specific cause. For example, a dog walking event is a great idea to raise money for an animal shelter.
• Sporting tournaments. This can include events such as volleyball, dodgeball, surfing etc. Require participants to raise a minimum amount of money to enter the tournament (such as $50 or $75 or $100). The amount is up to you.
• Car Wash. Can we say classic?? What better season to host a fund-raising car wash than summer?
• Throw a big 4th of July party and require a fee for entrance.
• Summer concert. Whether big or small, concerts have money generating potential. This can be a simple concert in the park, or a larger concert thrown through partnering with local venues and musicians.
• Outdoor movie. This can be a drive-in movie, a rooftop movie, a movie in the park, etc. Partner with existing companies who screen movies in outdoor locations and who already have necessary equipment and logistical knowledge.
• Treasure Hunt. Require teams to pay a fee to participate with the option of contributing extra money.

Summer fundraising ideas such as these (and more!) are the perfect way to combine a fun outing, whether for families, adults or children with a way to give back! To consider which type of event(s) are best for your organization’s purpose and mission statement, evaluate your target audience. Your choice should resonate with your donors and supporters. So get out there are use some of these summer ideas to earn top dollars, as well as strengthen your organization’s connection with your community and supporters!

In many ways, nonprofit and for-profit organizations are different. Payroll procedures, however, is one area where they must adhere to very similar rules and regulations. Wait…nonprofit organizations are tax-exempt, right? Well actually, this is a common misconception and although nonprofits are typically exempt from federal income taxes and certain other types of taxes, they are NOT exempt from payroll taxes.  

If your nonprofit organization is growing and it becomes time to scale up and hire employees, you will need to register for employer accounts, withhold payroll taxes, file returns and remit taxes. The rules and regulations that you must follow will depend on the area(s) where you and your employee(s) are located. Let’s go over some tips to make this process easier for you:

First of all, if your organization is not yet registered – now is the time. Register with the IRS to obtain your EIN (Employer Identification Number). This is necessary before hiring any employees and is required for filing tax returns, as well as remitting federal employment taxes.

Once you have registered your organization, you will also need to register for employer accounts in any state(s) where you will be hiring employees. Ensure that you pay close attention to this process, so as not to incur any penalties. Make sure that as new employees come in, you check to make sure you are registered in that state and if not, proceed to do so.

Just like a for-profit organization, you will not have your employees fill out the federal Form W-4 and any state specific tax withholding documents.

You will also need a payroll schedule. This typically happens bi-weekly or weekly. As you run payroll, your organization is required to withhold a percentage of your employee’s paycheck. This amount is made up of Medicare Tax, Social Security Tax, the federal withholding indicated on their W-4 and any other state specific employment taxes.

Remit the tax amounts withheld from the employee, plus an additional 7.65% employer FICA (Medicare & Social Security Tax) match to the IRS. You will also need to remit any amounts withheld from employees for state taxes, as well as the associated employer taxes for that state.

Lastly, file your organizations payroll tax returns either quarterly or annually. Refer to the particular state’s employer website for detailed requirements, as they vary widely from state to state.

Now you are on your way to having employees at your nonprofit organization!

Here at Harrington Group, we pride ourselves on being a little family unit. We each play our own role and we come together as a strong team. This week, we are shining the spotlight on one of our most valuable team members, managing partner Tonetta Conner.

Tonetta’s passion to become an accountant started at the age of fifteen, when she took her first accounting course in high school. Here, she managed and prepared “mock” corporate books and developed a desire to help others manage their business operations. From here on out, she was hooked. She went on to major in Business Administration, with an emphasis in accounting at the University of California, Berkeley. Then, of course, she later became a licensed CPA.

Early in her career, Tonetta worked as a Controller for a design-build firm and then as an accountant at a Los Angeles based CPA firm. Tonetta joined the Harrington Group family in June 1997. This is when she was able to combine two of her greatest passions: accounting and the wonderful opportunity to serve nonprofit organizations. Over her many years with the firm, she has drawn upon her extensive experience to provide accounting, auditing, tax, and management advisory services to our clients. A knowledgeable professional, Tonetta has developed her expertise in working with a range of nonprofit organizations—from privately funded community organizations, mental health agencies, foster care organizations to private and charter schools. Tonetta truly believes in the focus of the firm to be “a trusted nonprofit partner.” Outside of work, she is a philanthropist herself, supporting various nonprofits through donations and contributions.

Tonetta stands strong in her leadership role at this company and beyond. Her tenacity and her captivating public speaking abilities support her in leading others. She has shared her insights as a speaker at the California CPA Education Foundation’s Nonprofit Organizations Conference and as a speaker for CompassPoint on nonprofit finance.  Tonetta is often the speaker at the firm’s “NPO Symposiums” which are hosted quarterly on a variety of nonprofit topics and she provides tailored nonprofit management training to the Boards of her clients.

Tonetta is a member of the American Institute of Certified Public Accountants (AICPA) and the California Society of Certified Public Accountants (CalCPA). She also holds a Chartered Global Management Accountant (CGMA) designation from the AICPA.

Outside of her professional pursuits, Tonetta enjoys spending time with her family, attending sporting events and traveling the world. Those who know her well would say she is a “daredevil” and a “world traveler”, which are truly supported by her many traveling adventures—ziplining over the rainforest in Costa Rica, bungee jumping in Australia, driving an amphibian dune buggy through the Dominican Republic, and being up close and personal with “big game” on safari in Africa.  Tonetta loves to travel the world not just for the adventure, but also for cultural enlightenment. “We live in a society made of up people from various backgrounds and cultures. Seeking to know more about other cultures is to embrace that fact.”

It’s no secret that the IRS has lots of rules about expenses and about how to log and submit them for tax purposes. Although being a nonprofit organization keeps you exempt from actually paying taxes, it does not mean you are exempt from many of their other rules – including the task of keeping travel and other expenses organized.

So, what is the best way to do this? Let’s go over some of the key points pertaining to organizing travel expenses for nonprofit organizations.

                                                                                                              Travel Policies and Procedures

The first step to managing travel expenses for your organization is to have a set of defined travel policies and procedures. These policies and procedures should be distributed to all relevant members of the organization and reviewed before any travel outings. Ensuring that employees or volunteers are clear in what they need to provide after their trip, will make the rest of the process that much easier. Setting up a clear system is the best way to get clear and organized results, saving you time and hassle.

Travel procedures should outline:
1. A list of exactly what can be reimbursed and what is not reimbursable
2. The required documentation
3. Information about the standard mileage rate
4. An outline of estimated budget for certain expense categories (i.e. food, lodging, airfare, taxi, tips, parking ect) – based on individual trips

                                                                                                                       Accountable Plan

If you reimburse an employee or even a volunteer for travel (or for other expenses), you must do so using an “accountable plan”. This is important because if you don’t use an accountable plan, the reimbursement will be considered taxable wages and no one who is helping or working for a nonprofit wants to be taxed on their reimbursements!

An accountable plan (IRS publication 463) is defined by:

1. Expenses reimbursed are for a nonprofit purpose
2. Expenses are accounted for within “a reasonable period of time”
3. Any excess reimbursement or allowance is returned within a reasonable period of time

To account for expenses, travelers need to provide:

1. Detailed receipts which show dates or purchase, what was purchased and the vendor
2. An expense report documenting all relevant information about the trip

                                                                                                                    The Standard Mileage Rate

The IRS updates the standard mileage rate every year. The rate for 2021 is:

• 56 cents per mile “driven for business use”
• 14 cents per mile “driven in service of charitable organizations”

Here is where we find a difference between employee and volunteer reimbursement rates, which can complicate expense reporting a little further. Employees of nonprofit organizations may be reimbursed based on the business rate, as they are incurring business mileage while on the job. On the other hand, volunteers find themselves in the category of service for charitable organizations and are therefore capped at 14 cents per mile. On the upside for volunteers, they may also be reimbursed for commuting mileage, while employees may not be reimbursed for their daily commute to and from work.

Using an accountable plan to have mileage excluded from taxable income, both employees and volunteers must provide complete documentation of their trip. Details include:

1. Date(s) of travel
2. Purpose of travel relating to the business
3. The travel destination
4. Total mileage driven
5. Include all receipts upon submission

                                                                                                                           Travel Advances

Travel advances are another topic that should be outlined in an organization’s travel policies and procedures. This can be a tricky area, depending largely on the type of travel. There are a lot of nonprofit organizations who work to help youths and often take large trips where chaperons monitor groups of youths. In instances such as these, it can be too much of a financial burden to expect the chaperons to pay up front and be reimbursed (especially when it comes to feeding large groups multiple meals a day).

This is where the concept of a travel advance makes sense, given that limits and guidelines have been given ahead of the trip. It is an option to give an advance, based on a per person budget, for meals and any other misc expenses that may fall outside of the pre-paid travel fees. Any remainder at the end of the trip would be returned to the organization. You can also hand over a company credit card – although this takes a lot of trust in the designated employee(s) who will be responsible for the limit of charges going to the card.

Regardless of the method, travel advances will come up and every organization should have a policy outlining details.

The differences between nonprofit and for-profit organizations are substantial – beginning with their core missions and extending into ethics, practices and accounting methods. Nonprofit organizations exist to meet the needs of society and to do good things for people without any monetary goals. As they are not earning revenue for profit, it is easy to see why the accounting methods would differ from those of organizations who are turning profits. While the accounting practices of these two entities share the same underlying goal – to keep track of financials and provide transparent feedback - the information that must be disclosed to the government is different. Let’s take a look at some of these key differences for accounting purposes:

Income Statement VS Statement of Activities

Businesses that operate for-profit must maintain an income statement (aka a profit and loss statement) that breaks down financial information regarding revenues and expenses. This statement will indicate whether the organization has a net income or net loss during a period of time – information sought after by investors and creditors alike. On the other side of things, nonprofit organizations maintain a statement of activities (SOA). This will include revenue (from all sources, such as membership dues, grants etc) as well as expenses. The SOA will showcase a nonprofits net assets and may indicate either a surplus or a loss.

Balance Sheet VS Statement of Financial Position

Financial statements must be prepared regardless of the entity classification. The main difference here is that for-profit organizations have owners and shareholders (or some do) and nonprofits do not have owners. So, nonprofits prepare a statement of financial position which outlines the net assets of the business (assets minus liabilities). For-profits must prepare a balance sheet (typically this happens quarterly), which also outlines their net assets. This sheet includes owner’s equity or stockholder’s equity and assets minus liabilities. Similar but different!!

Income VS Contributions

As we have already outlined, for-profit organizations exist for monetary gain and they receive income differently than not-for-profit organizations. While for-profits make money through aspects of the business such as sales of merchandise, service fees and shares of stock, nonprofits also receive contributions – monetary, physical and service based. A nonprofit can receive in-kind contributions, restricted and unrestricted contributions, grants and awards, membership dues, fundraising money and money from sales or merchandise. As all contributions to a not-for-profit are put back into the business for purposes of funding their chosen philanthropic avenue, this flow of assets is not classified as “income”.


Tax Status

One of the clearest differences between for-profit and nonprofit is the tax status of the organization. Nonprofits, once approved as a 501(c)(3) by the IRS, are exempt from paying federal income taxes. State and local taxes will vary from state to state. In addition, individuals who donate to nonprofit organizations will receive a tax deduction at the end of the year. All for-profit organizations are responsible for paying income taxes at local, state and federal levels.