Nonprofit Glossary
Plain-language definitions for 30 nonprofit, charity, and IRS terms. Understand what the numbers mean before you donate.
Financial Terms
Administrative Overhead
The costs of running a nonprofit that are not directly tied to program delivery, including management salaries, office rent, and general operations.
Endowment
A pool of invested assets held by a nonprofit to generate ongoing income, with restrictions on spending the principal.
Restricted Funds
Donations or grants that must be used for a specific purpose or during a specific time period as designated by the donor.
Unrestricted Funds
Donations and revenue that a nonprofit can use at its discretion for any purpose consistent with its mission.
Functional Expenses
The classification of nonprofit expenses into three categories: program services, management/general, and fundraising.
Net Assets
The total value of a nonprofit's assets minus its liabilities, representing the organization's cumulative financial position.
Operating Reserve
Unrestricted funds set aside by a nonprofit to sustain operations during periods of financial difficulty or unexpected expenses.
Governance & Accountability
CEO Compensation (Nonprofit)
The total salary, benefits, and other compensation paid to the chief executive officer or top officer of a tax-exempt organization.
Board of Directors
The governing body of a nonprofit organization responsible for oversight, strategic direction, and fiduciary accountability.
Conflict of Interest
A situation where a board member, officer, or employee has a personal or financial interest that could compromise their duty to the organization.
Annual Report
A voluntary publication by a nonprofit summarizing its activities, impact, and financials for stakeholders and the public.
Executive Compensation Disclosure
The Form 990 requirement that nonprofits report salaries and benefits paid to officers, directors, and highest-compensated employees.
Independent Audit
An examination of a nonprofit's financial statements by an external certified public accountant to verify accuracy and compliance.
IRS & Tax Law
Form 990
The annual information return that tax-exempt organizations file with the IRS to report their finances, governance, and activities.
Tax-Exempt Status
The IRS designation that exempts qualifying organizations from paying federal income tax on revenue related to their exempt purpose.
501(c)(3)
A section of the Internal Revenue Code that grants tax-exempt status to charitable, religious, educational, and scientific organizations.
Unrelated Business Income
Revenue from a trade or business regularly carried on by a tax-exempt organization that is not substantially related to its exempt purpose.
Lobbying by Nonprofits
Efforts by tax-exempt organizations to influence legislation, subject to IRS limitations based on the organization's tax-exempt classification.
Ratings & Metrics
Program Expense Ratio
The percentage of total expenses a nonprofit spends directly on its charitable programs and mission-related activities.
Efficiency Score
NonprofitTruth's proprietary 0-100 rating (graded A-F) measuring how effectively a nonprofit uses its resources.
Charity Navigator
An independent nonprofit evaluator that rates charities based on financial health, accountability, and transparency.
GuideStar (Candid)
A nonprofit information platform (now part of Candid) that collects and publishes data on tax-exempt organizations, including Form 990 filings.
Fundraising Ratio
The percentage of a nonprofit's total expenses devoted to soliciting donations and contributions.
Organization Types
501(c)(4)
A tax-exempt classification for social welfare organizations that may engage in political activities, but donations are not tax-deductible.
Public Charity
A 501(c)(3) organization that receives a substantial portion of its revenue from the general public or government grants.
Private Foundation
A 501(c)(3) organization typically funded by a single source, such as a family or corporation, subject to stricter IRS regulations.
Fiscal Sponsor
An established 501(c)(3) organization that provides its tax-exempt status and administrative infrastructure to a project or group that lacks its own exemption.
Donor Concepts
Donor-Advised Fund
A charitable giving account managed by a sponsoring organization where donors make irrevocable contributions and recommend grants to charities.
Charitable Deduction
A tax benefit allowing individuals and corporations to reduce taxable income by the amount donated to qualifying tax-exempt organizations.
In-Kind Donations
Non-cash contributions to a nonprofit, such as goods, services, or use of facilities, reported at fair market value.