Profit

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A commercial entity's profit - often called 'the bottom line' after its position on a balance sheet - is the amount of its yearly revenue remaining after accounting for all annual expenses. Profit is also called 'net revenue', 'net earnings' or 'net income'; or loss if the bottom line is negative. Different entities' profits are taxed differently depending on how their profit-making is defined.

Taxed or not?

For-profit organizations are those like corporations, businesses and professional firms whose sole purpose is considered to be the generation of profit through commercial transactions. These profits are subject to federal taxes, though at a rate lower than the individual income-tax rate. However, the Internal Revenue Service (IRS) considers some groups, like clubs, political groups and charitable organisations, as 'non-profit' organisations because their main purpose is something other than making a profit, even if they wind up the year with one.[1] They are often called 501(c) organizations after the section of the tax code that lists eligible groups of non-profit entities.[2]

Each eligible group in section 501(c) has its own code number depending on its purpose. The most common and sought-after is 501(c)(3), or 'charitable', and includes both public charities and private foundations.[3] The 501(c)(3) groups are exempt from federal income tax and donations to them are tax-deductible so long as they fall into one of the sub-categories of 501(c)(3) that are based on a group's aims. The IRS recently announced that 501(c)(3) non-profit organizations must now place their business-income tax returns (Form 990-T) on public display.[4]

References

  1. ↑ Nonprofit corporation. NOLO. Retrieved on August 14, 2008.
  2. ↑ 501. Exemption from tax on corporations, certain trusts, etc.. Cornell University Law School. Retrieved on August 14, 2008.
  3. ↑ How the IRS Classifies Nonprofit Organizations. About.com. Retrieved on August 14, 2008.
  4. ↑ Public Inspection and Disclosure of Form 990-T. Internal Revenue Service. Retrieved on August 14, 2008.
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