NAL, my understanding: The profits aren't taxed, and the shareholders aren't allowed to take dividends out (there effectively are no "shareholders" per se, just donors); all profits have to be reinvested back into the business.

In the case of many/most (honest) non-profits, the operating costs are paid out of a combination of the dividends of an invested principal (endowment, having been previously donated by donors) and grants/current donations. Any operating profit could then be returned to the endowment, allowing the organization to maintain higher operating costs indefinitely, thus giving the organization more capacity to further their mission.

Nonprofits can make profits. They aren’t taxed, but they can’t issue dividends. In theory there is some reasonable limit (in the millions) of how much they can pay out via salary compensation etc. they can’t issue dividends because they have no shareholders and no equity. Therefore the profit must simply be used towards their goal, basically.

Well, you're confused because of your erroneous determination that they're "able to make a profit." They are not. They are able to have positive cash flow but the money can only be reinvested in the nonprofit rather than extracted as profit.

OK, so for me "positive cash" and "profit" are synonyms, with "[not] extracted" meaning "[no] dividends".

Positive cash flow and profit are almost synonyms although there can be subtleties they are not relevant to this discussion.

The parent comment is making a common mistake that non-profits can not make profits, that is false. Non-profits can't distribute their profits to their owners and they lack a profit motive, but they absolutely can and do make a profit.

This site points out common misconceptions about non-profits, and in fact the biggest misconception that it lists at the top is that non-profits can't make a profit:

https://www.councilofnonprofits.org/about-americas-nonprofit...

As the government sees it, you realize "profit" when you, as an owner of the business, take the money it makes for yourself.

That's not the case in the US. Depending on corporate structure, if your business makes more revenue than expenses, even if none of it is paid out and it's all kept in the business, you will either owe corporate taxes on that amount (C-Corp or non-pass through LLC) or the full personal income tax rate (pass through LLC).

Not saying you can't owe tax on it but isn't that unrealized profit?

"Unrealized profit" is a term used for investments or assets afaik, when the paper value has increased but the gains haven't been realized by selling.

For a business, revenue minus expenses in a given accounting period is considered profit. The only question is whether it gets treated as corporate profit or personal income.

This is bogus and doesn't even make sense.

That would mean that any publicly traded company that didn't issue a dividend didn't make a profit which no one believes.

Do you really want to claim that Google has never made any profit?

It's all quite confusing. A non-profit can as you say turn a profit but isn't supposed to distribute it to owners.

There is a difference between positive cash flow and profit as profit has differences in accounting rules. If you invest in some asset (let's say a taxi car) today, all of that cash flow will happen today. But there will be no effect on the profit today, as your wealth is considered to have just changed form, from cash into an asset. For the purposes of profit/loss, the cost instead happens over the years as that asset depreciates. This is so that the depreciation of the asset can be compared to the income it is generating (wear and tear on car vs ride fare - gas).

It certainly can be confusing. I generally use the term "nonprofit" to mean a corporate entity formed under a nonprofit corporation act, e.g., one derived from the Model Nonprofit Corporation Act. This says nothing about the tax status of the entity, and unless other circumstances also apply the entity would be subject to taxes in the same way as a for profit company on its net income. But many nonprofits also take steps to qualify for one of several tax exemptions, the most well known being section 501(c)(3). Not all of the familiar tax advantages apply to all tax exempt organizations. For example, donations to an organization exempt under 501(c)(3) are deductible by the donor, but donations to a 501(c)(4) are not.