Nonprofit glossary: key terms, explained

Starting a nonprofit & tax status

• 501(c)(3): A nonprofit the IRS recognizes as tax-exempt for charitable, religious, educational, or scientific work. Donations to it are generally tax-deductible. Read: What is a 501(c)(3)?
• Private foundation: A 501(c)(3) funded mainly by one person, family or company that mostly makes grants rather than raising money from the public. It follows stricter rules than a public charity, including paying out about 5% of its assets each year. Read: How to start a private foundation
• Tax-exempt: Not required to pay federal income tax on income tied to the organization's exempt purpose.
• Form 1023 / 1023-EZ: The IRS applications for 501(c)(3) status. The 1023-EZ is a shorter form for smaller, eligible orgs; other applicants file the full 1023. Some groups, such as churches, do not have to apply. Read: Form 1023 vs. 1023-EZ
• EIN: Employer Identification Number, the IRS tax ID your nonprofit needs before it applies for exempt status or opens a bank account. Read: How to get an EIN
• Articles of incorporation: The public document you file with your state to create the nonprofit, its charter. The IRS looks for two clauses in it: your purpose, and where your assets go if you close. Some states call it a certificate of incorporation. Read: How to write your Articles
• Registered agent: The person or company your state and the courts contact to reach your nonprofit, for lawsuits and official notices. The agent needs a physical address in your state and must be reachable during business hours. Read: Registered agent
• Bylaws: The internal rulebook for how your nonprofit is governed: board roles, meetings, voting, and more. Read: Bylaws & conflict-of-interest templates
• Fiscal sponsorship: An arrangement where an existing 501(c)(3) lets a project operate under its exempt status, so the project can accept tax-deductible gifts without forming its own nonprofit.

Compliance & the IRS

• Form 990: The annual information return most nonprofits file with the IRS. Smaller orgs may file the 990-EZ or the postcard-style 990-N. Read: Which Form 990 do I file?
• Charitable solicitation registration: Registration many states require before a nonprofit asks residents for donations. Read: Charitable solicitation registration
• Automatic revocation: Loss of tax-exempt status the IRS triggers when an org fails to file a 990 for three years in a row. Read: Nonprofit compliance calendar

Grants & funding

• Grant: Money given to a nonprofit for a specific purpose, usually by a foundation, government, or corporation, and not repaid. Read: Finding grants for small nonprofits
• Types of grants: The main kinds include foundation, government, corporate, operating (general support), program/project, and matching grants. Read: Types of grants for nonprofits
• Letter of inquiry (LOI): A short pitch many funders ask for first. It can lead to a full proposal or win the grant on its own. Read: What is a letter of inquiry?
• Restricted funds: Money a donor or grant limits to a specific use or time, tracked separately from general operating money. Gifts given in answer to an ask for a named purpose, like a new van, count too.
• Unrestricted funds: Money with no donor-imposed limit on how you spend it, so it can go to salaries, rent, a reserve or whatever needs it most. It is the most flexible money a nonprofit can get. Read: Unrestricted grants for nonprofits
• Fund accounting: Accounting built for nonprofits that tracks money by restriction and grant, rather than as one pooled balance.

Donors & fundraising

• Donor management (CRM): Software or a system that keeps donor records, gift history, and relationships in one place. Read: Donor management basics
• Donor-advised fund (DAF): A giving account a donor funds and then recommends grants from over time; the sponsoring organization holds the money.
• In-kind donation: A non-cash gift of goods, services, or time, rather than money. Read: In-kind donations
• Matching gift: A donation an employer matches, often dollar-for-dollar, multiplying a supporter's gift. Read: What is a matching gift?
• Donor stewardship: The ongoing work of thanking and updating donors so they give again. Read: Donor retention & stewardship
• Donor retention rate: The share of last year's donors who gave again this year. It is the simplest number for whether your thank-yous and updates are working. Read: Donor retention & stewardship
• Written acknowledgment: The receipt a donor needs from you before deducting any single gift of $250 or more. It gives the amount, or describes a non-cash gift without valuing it, and says whether the donor got anything in return. Read: Donation acknowledgment letters
• Quid pro quo contribution: A payment that is partly a gift and partly a purchase, like a gala ticket that includes dinner. When it is over $75, you must tell the donor in writing that only the amount above the value of what they received is deductible, with a good-faith estimate of that value. Read: Donation acknowledgment letters

Volunteers

• Volunteer management system: Software that keeps everything about your volunteers in one place: sign-ups, shifts, hours and contact details, instead of spreadsheets and email threads. Read: What is a volunteer management system?
• Volunteer waiver: A short form a volunteer signs before helping, saying they understand the risks of the activity and releasing your nonprofit from liability for them. How far it protects you depends on your state. Read: What is a volunteer waiver? (free template)
• Value of volunteer time: A dollar value put on volunteer hours, most often the national hourly figure Independent Sector publishes each year. It shows funders and your board what volunteers contribute, and some grants count it toward a required match. Your financial statements follow stricter rules. Read: Volunteer hour value calculator

Governance & board

• Board of directors: The volunteers legally responsible for governing a nonprofit and overseeing its mission and finances. Read: Board member responsibilities
• Fiduciary duties: The three legal duties every board member owes the nonprofit: care (pay attention and decide on facts), loyalty (put the nonprofit ahead of your own interests), and obedience (stay true to the mission, the bylaws and the law). Read: Board member responsibilities
• Quorum: The minimum number of board members who must be present for a meeting's votes to count. Read: What is a quorum?
• Consent agenda: A bundle of routine board items, like the last meeting's minutes, approved together in one motion without discussion. Any member can pull an item out for discussion, no reason needed. Read: What is a consent agenda?
• Board meeting minutes: The official record of what your board decided and why. Form 990 asks whether you document board meetings at or near the time they happen. Read: Board meeting minutes
• Conflict of interest policy: A written rule requiring board and staff to disclose personal interests that could sway a decision. Read: Bylaws & conflict-of-interest templates

Programs & impact

• Outputs vs. outcomes: Outputs are what you did (meals served); outcomes are the change that resulted (families food-secure). Funders care most about outcomes. Read: Outputs vs outcomes
• Logic model: A one-page map linking your resources and activities to the outputs and outcomes they produce. Read: What is a logic model?
• Theory of change: The bigger-picture explanation of how and why your work leads to the change you seek.
• Impact report: A short report that shows funders, donors and your board the good your work did: who you served, what changed, and what it cost. Read: Impact reporting for funders
• True program cost: What a program really costs: the money spent on it directly, the paid staff time that went into it, and the volunteer time that kept it running. Most small nonprofits only count the first. Read: What a program really costs
• Nonprofit software: Tools built to help nonprofits manage donors, grants, volunteers, programs, and compliance, often free or discounted for charities. Read: What is nonprofit software?