What is earned income and how do I learn more about it?
Simply put, earned income is revenue generated from the sale of goods, services rendered, or work performed. One popular nonprofit example is Girl Scout cookie sales. If you have ever purchased a box, you have contributed to the earned income of the Girl Scouts organization. Thanks! Many arts nonprofits also benefit from earned income through ticket sales and gallery events.
Earned income is gaining popularity among nonprofits. Revenue-earning programs allow organizations to diversify or expand their base of support to meet growing needs and to better sustain their operations over the long term. Some nonprofits may be scared off by the possibility of having to pay taxes on what the IRS calls unrelated business income, but many experts say it's still worth it.
Fortunately, there are helpful online resources you can consult to see if alternative revenue options are in your organization's best interest. The Society for Nonprofit Organizations' Fundraising Guide to Earned Income is a good start. It states that earned income may help improve your organization's image and visibility, but for-profit businesses may feel you're competing unfairly and could challenge your tax-exempt status. The guide also includes tips and questions to ask yourself before starting such a venture (i.e. "What programs, products, and services does your organization already have in place that you could adapt for the marketplace?"). A nonprofit's earned income strategy could be just about anything but most people say stick with what you know, as in what your nonprofit does.
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Staff-recommended websites
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Society for Nonprofit Organizations
Fundraising Guide: Earned Income
Article on earned income including a list of pros and cons, tips and concrete steps you can take to generate earned income.
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Nolo.com
Tax Concerns When Your Nonprofit Corporation Earns Money
A plain language explanation of when a nonprofit's sale of goods or services might be taxable.
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Stanford Social Innovation Review
The Importance of Earned Income in Your Funding Model
SSIR makes the case that earned income is something your nonprofit should at least consider.
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Nonprofit Law Blog
The Profitable Side of Nonprofits – Part I: Earned Income
Advice on earned income from Neo Law Group, a firm specializing in nonprofit law.
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Stanford Social Innovation Review
Finding Your Funding Model
Many nonprofit leaders seek reliable funding but are not sure how best to pursue it. Four guidelines provide a road map for leaders to identify and develop the right funding model for their organization.
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IRS
Unrelated Business Income Tax
For nonprofits there is a fine and perhaps even invisible line between earned income and unrelated business income.
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The Bridgespan Group
Finding Your Funding Model: A Practical Approach to Nonprofit Sustainability
This is a guide to figuring out sustainable funding that works for your nonprofit. It discusses earned income, but is not a guide to using it as a funding model.
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Staff pick
Nolo [MP3]
Can a Nonprofit Make a Profit?
This podcast explains in detail the issues related to nonprofits charging money for goods/services.
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Social Velocity
Financing Not Fundraising: Evaluate Earned Income
This blog post provides a list of questions to ask before your nonprofit initiates a money-making venture.