Since a non-profit entity makes no profit, it pays no taxes
Is this true in the strictest sense? I mean I've seen a lot of non-profits make more money than they spend, but they're somewhat obligated to reinvest the money next year.
My impression was that non-profit was sort of a "pinky promise" about how you'll use your profits (with the IRS flying in if this is not the case)
That's true. If profit is defined as income less expenses, some orgs may have more income than expenses at the end of the year, which could be considered "profit". However, a non-profit is organized in such a way as there are no shareholders or other owners to distribute the profit. So, the precise term should be non-profit-distribution, I guess. Of course, the principals of a non-profit still take a salary, and you could probably sneak in a reasonable bonus as well, and not call it a profit distribution.
Comments
Is this true in the strictest sense? I mean I've seen a lot of non-profits make more money than they spend, but they're somewhat obligated to reinvest the money next year.
My impression was that non-profit was sort of a "pinky promise" about how you'll use your profits (with the IRS flying in if this is not the case)
That's true. If profit is defined as income less expenses, some orgs may have more income than expenses at the end of the year, which could be considered "profit". However, a non-profit is organized in such a way as there are no shareholders or other owners to distribute the profit. So, the precise term should be non-profit-distribution, I guess. Of course, the principals of a non-profit still take a salary, and you could probably sneak in a reasonable bonus as well, and not call it a profit distribution.