How are nonprofit corporations taxed?

Income earned by normal for-profit C corporations is taxed twice: once at the entity level and then again at the personal level when that income gets disbursed to shareholders and employees. However, nonprofit corporations that qualify under section 501(c)(3) of the IRC are exempt from paying federal income tax and are eligible to receive tax-deductible donations. There are usually corresponding income tax exemptions at the state level as well, and certain states and local governments also offer an exemption on paying sales tax.