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  • Charitable, cultural, and educational organizations that exist for reasons other than providing a profit for its owners, directors, or members are nonprofit organizations.

    However, these organizations can generate income to pay for their activities, salaries, and overhead by charging for services, making investments, and soliciting donations and memberships.

    A nonprofit arts center, for instance, may charge patrons for tickets and event subscriptions.

    Nonprofits incorporate in the states where they operate and are exempt from the state income taxes that for-profit corporations must pay. Some but not all qualify for federal tax-exempt status under section 501(c)(3) of the Internal Revenue Code.

    Contributions to those qualifying organizations are tax deductible, though tax rules govern the percentage of your income you may deduct for gifts to different types of nonprofits.

    In exchange for these tax benefits, nonprofits must comply with some of the same financial reporting rules that for-profit corporations follow.

    For instance, nonprofits generally must follow corporate governance rules and make their financial reports available to the public.

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