Exclusive Executive Brief – September 2026 – Nonprofit vs. For-Profit: Differences You Need to

For nonprofit organizations there is no shortage of compliance considerations and limitations to be aware of. Most nonprofits are required to file an annual tax return, a public document that includes a great deal of governance and compliance questions along with financial information. Anyone involved with a nonprofit organization will soon realize that there are significant differences compared to for-profit businesses.

Know what could put your organization’s status at risk

Nonprofits are subject to rules and limitations that for-profit businesses aren’t concerned with. Nonprofits must know the rules to follow so as not to jeopardize their tax-exempt status and risk loss of exemption. To name a few examples:

• Do not engage in more than incidental private benefit transactions and avoid private inurement (self-dealing in the context of private foundations) entirely. 
• For public charities, political activities are strictly prohibited and lobbying is limited.
• In general, a public charity must be supported by the broad public and not funded by a few donors. Failing the public support test could result in a public charity becoming a private foundation (operating under a different set of rules with more limitations). 
• Ensure activities align with the tax-exempt purpose (mission) and governing documents.

Myth: Nonprofits don’t pay income tax | Truth: They might!

Activities not substantially related to the organization’s mission, that are a trade or business, and regularly carried on, may be Unrelated Business Income (UBI) and subject to income tax. While there’s no need to avoid UBI entirely, substantial UBI can jeopardize tax-exempt status. 

Two common sources of UBI are: 

• Advertising 
• Rental income (from debt-financed real property, personal property, or with substantial services provided)

It is important to work with a trusted advisor to analyze existing and new sources of revenue to determine whether there is UBI. There are many exclusions and exceptions to consider. A professional can help navigate reporting requirements and assist with tax planning.

Compensation Disclosures are Public

Nonprofit tax filings are publicly disclosed. Anyone can go online and pull up a nonprofit organization’s previous filings; GuideStar/Candid and ProPublica Nonprofit Explorer are user-friendly options, along with the IRS Tax-Exempt Organization Search. It may come as a surprise to individuals when their compensation information is available to the public via Form 990. 

• Each individual Board member’s compensation is required to be reported.
• An employee’s compensation may also be reported depending on the position held, if certain thresholds are met, or because of their relationship to the organization (such as family of a board member). 

Ultimately, because of the public nature of nonprofit organizations, including the tax return filings, it’s important to know who might read Form 990. The organization’s accomplishments should be descriptively showcased knowing that a potential donor might view the return. Governance best practices can be put in place to instill confidence in members of the public, including grantmakers and watchdog groups, that the organization is well-run. Just like their for-profit counterparts, nonprofits must partner with trusted financial advisors, attorneys, and accounting experts, nonprofits safeguard their regulatory compliance and protect their public reputation.

Helpful resources:

• IRS Charities and nonprofits page
• IRS Tax Exempt Organization Search
• GuideStar
• ProPublica Nonprofit Explorer
• Form 990 Instructions

We would like to thank our contributing author,

Amber Rathbun, CPA of Maner Costerisan for writing this article.