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Myths About Nonprofits

While nonprofits are all around us, sometimes we find that there are some common misconceptions about what nonprofits are and what they do. Detailed here are some of the more common myths about the sector.

Myth: Nonprofits can’t earn a profit

Reality: Nonprofits can make a profit; however, a nonprofit organization cannot distribute its profits to any private individual. This is because charitable nonprofits are formed to benefit public, not private, interests. For more information see the IRS page on charitable organizations.  Learn more about what charitable nonprofits need to do to maintain their tax-exempt status.

Myth: Nonprofits don’t have paid staff; they only use volunteers

Reality: In 2010, nonprofits employed 13.7 million Americans, or about 10% of the work force. In fact, if the nonprofit sector were a country, it would have the seventh largest economy in the world. In 2010, 9.2% of all wages and salaries paid in US were from nonprofit organizations and the nonprofit sector represented 5.5% of the GDP in 2012.

Myth: Nonprofits can’t lobby

Reality: Every charitable nonprofit can and should make its voice heard on issues that are important to its mission and to the people or cause they serve. As advocates, nonprofits are sometimes required to speak up about policies, laws, and regulations that affect the charitable nonprofit community and their individual mission.  However, partisan political activity, such as endorsing a candidate for public office, is prohibited conduct for charitable nonprofit organizations. For more information on lobbying, see our advocacy resources.

Myth: A well-run nonprofit should have low "overhead" costs

Reality: Core operating costs, such as paying utility bills, rent, salaries, and other indirect costs of delivering a nonprofit’s mission are in fact necessary, and have no relation to the level of effectiveness or the outcomes a charitable nonprofit may deliver. While overhead costs have been portrayed in a negative light for years, this myth is finally being challenged through initiatives such as the Overhead Myth and Real Talk about Real Costs.  

Myth: Nonprofits get most of their funding from foundations

Reality: Foundation grants represent only a small part of the total revenue for the charitable nonprofit community as a whole. Private philanthropy, which includes both donations from individuals and grants from private foundations represent only 13.3% of the total annual revenue to the charitable nonprofit community, and of that, the majority is from contributions from individuals. (Source: The 2012 Nonprofit Sector in Brief, Figure 2.)   

Myth: The charitable giving incentive only benefits wealthy individuals and elite institutions

Reality: All charitable nonprofits benefit form public support and donations, and most depend on private donations to serve their communities. And while the individual taxpayer only receives a partial tax benefit for their donation, the community served by the nonprofit receives the full value of every dollar. Any cap on the giving incentive negatively affects the community served by the nonprofit more than any one individual. For more information see our resources on the charitable giving incentive.

Myth: Most nonprofits are large and have many resources

Reality: In fact, most nonprofits are small in both budget size and numbers of employees. While large national nonprofits like the Red Cross have high visibility, such organizations are not representative of the community as a whole. In 2010, 82.5% of all reporting public charities had annual revenue of under one million dollars.  (Source: The 2012 Nonprofit Sector in Brief, see Figure 1.)