Nonprofits growing at rapid rate

Charities may want to update their donation management software in 2014.

Although there are nearly four times as many private sector businesses in the U.S. than there are nonprofits, charitable foundations are growing at a rapid rate, according to a recent New York Times report.

Between 2001 and 2011, domestic nonprofits grew 25 percent whereas for-profit businesses only increased by 0.5 percent, The New York Times said, citing a recent Urban Institute report. In fact, charities outgrew private enterprises in percentage growth in contribution to gross domestic product, wages and hiring.

Wide variety of charities in the U.S.
According to the Internal Revenue Service, an organization can file for tax exemption if none of its earnings may benefit any private shareholders or interests. Most charities make money by processing donations from benefactors and organizing large fundraising events. Entities like hospitals often hold large occasions while universities rely on yearly tuition. Small organizations in local communities typically rely on donations and small fundraising events.

By filing for 501(c)(3) status with the government, nonprofits can be exempt from corporate taxes. Under this legislation, most charities' donations are tax-deductible. 

The increase in nonprofits, regardless of size, provided employment for nearly 10 percent of the workforce in 2010, according to the IRS' website. Overall, there were roughly 1.6 million nonprofits who accounted for 5 percent of gross domestic product - $779 billion to be exact - the same year. In 2012, the nonprofit share of GDP was 5.5 percent, the National Center for Charitable Statistics said.

Reasons for the recent upswing in charitable organizations include:

  • Charities focused on lower-class Americans found a higher demand after the Great Recession
  • The baby boom generation is funneling a large amount of its money into the healthcare field due to increasing age and greater need for medicine and services
  • Family foundations are becoming increasingly popular; these organizations provide a place for untaxed wealth to remain under donor control

Giving to charity benefits both parties
Under current tax legislation, donors may deduct charitable contributions made to qualified organizations as long as its itemized properly. In doing so, a benefactor is able to reduce his or her taxable income and tax bill. 

However, certain nonprofit contributions are not tax-deductible. Groups like the AARP, organizations with specific political ties, and the head office of the National Football League, The New York Times said. But even if some groups are not tax-exempt, nonprofit growth is still projected to increase due to a slowly recovering economy and unlikely changes to an already established tax code. 

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