How Do We Classify Charities?

by | Mar 30, 2021

You probably know that there are many different charities with many different causes. In fact, you might be the founder or part of the leadership team for a nonprofit yourself!

Nonprofit organizations have a lot of causes and missions. But, we can get even more specific than that.

What Qualifies as a Section 501(c)(3) Organization?

Under Section501(c)(3) and the IRS, there are three main types of charities:

  • Private Foundations
  • Public Charities (most common)
  • Private Operating Foundations

Private Foundations

According to the IRS, the difference between a private foundation and a charity has to do with the financial support it receives. Private foundations usually have a smaller donor audience and generate income from invested endowment funds. Then, they rely on this income to distribute grants to advance the nonprofit work of other organizations. An example of well-known private foundations include the Bill and Melinda Gates Foundation. 

Public Charities (most common)

The most common type of 501(c)(3) is a public charity. Public charities can accept donations. These donations are tax-deductible. In fact, one can donate up to 50% of their income, while corporations/businesses may donate up to 10% before being taxed. Typically, pubic charities are governed by board members. Now, take a second to reflect: are you/are your board members working too hard on your accounting and bookkeeping? Are you, or someone on your board, trying to teach themselves accounting practices and specifics? You shouldn’t be trying to overwork yourself, nor feeling distracted from your mission. We encourage you to view our services and plans for outsourcing your nonprofit on our website, which can be found here.

Examples of public charities include churches, animal wellbeing agencies and educational organizations. What type of organization do you oversee? Share in the post comments of this article!

Private Operating Foundations

The last, and least common 501(c)(3) organization(s), is what we call a private operating foundation. Many see private operating foundations as a hybrid between a public charity and a private foundation. Both private foundations and private operating foundations aren’t criticized as much as other charitable foundations because donors have close ties to charities.

What Current/Future Board Members Need to Know about Charities

Board directors and other nonprofit leaders must be aware of specific laws that they might navigate alongside, or against, when working in the nonprofit sector. An insightful article from Nonprofit Hub outlines some key things your nonprofit shouldn’t do! 

Next Steps for Charity Leaders

If you are ready to enhance, or begin, your nonprofit journey, we encourage you to check out A Modern Nonprofit Podcast, which is a weekly podcast series that The Charity CFO generates to help leaders, like you, maximize your mission. Also, make sure to check out A Modern Nonprofit Facebook Group, a community of leaders and professionals who converse about relevant topics every single day.

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