Like any business, a nonprofit needs to perform standard bookkeeping tasks such as handling multiple bank accounts and bank reconciliations, tracking organizational expenses, and paying vendors on a timely basis. But nonprofits also need to deposit donations and grant funds, track both monetary and in-kind donations, provide donors with tax receipts and thank you letters, and in many cases manage volunteers. Here are just a few of the ways that for-profit and nonprofit organizations differ. Taxes – While for-profit businesses are required to pay taxes on their income, a nonprofit organization is exempt from paying taxes on donations or grants.However, like a for-profit business, a nonprofit is still responsible for all federal, state, and local taxes, as well as Social Security and Medicare taxes. Profit management – A for-profit business can put profits earned into retained earnings for future use, distribute earnings to shareholders, or a combination of the two.Accountability – While a for-profit business is typically accountable to the owners or shareholders, a nonprofit is accountable to its board members as well as anyone that provides funding to the organization, whether it’s a $5 million grant or a $50 donation.Īny profit earned by a non-profit must be reinvested back into the organization’s work.In addition, nonprofits often hold fundraisers or run campaigns in order to fund their programs. Like for-profit businesses, nonprofits vary in both size and scope.Īll of the funds raised from that fundraiser or campaign, as well as any related expenses, need to be handled separately, using separate funds.