By Eva Rosenberg, EA
A friend came to me with a problem. For the first time, a client’s S Corporation was projecting over $300,000 in profit. He didn’t want to give it all up to the government in taxes, what’s his alternative?
As we brainstormed, one idea got more and more interesting — setting up a tax exempt charity organization and contributing $150,000 to get it started. Why?
There were several good reasons, some that might appeal to you.
1) The client could get a donation worth up to 50% of his adjusted gross income.
2) He had an unemployed daughter who was struggling to find a decently paying job, in a tough economy. He could hire her as executive director to run the organization.
3) He and his family were passionate about boating. They could introduce their passion to young children, underprivileged teens, and even adults.
4) It wouldn’t be hard to get volunteers involved in a fun charity, that involved boating, fishing, scuba diving and healthy, happy outdoors fun.
5) Getting corporate donations shouldn’t be hard for something upbeat like this. In fact, they could get more than money, they could get the corporations to provide teams of volunteers.
6) With all that fun going on, getting free publicity would be a snap.
Does this sound like just too much fun to be tax deductible?
Charities don’t have to be about doom, gloom, pain, death, or illness. They can be designed to teach, to promote, to encourage, and to grow. They can be formed to protect something endangered (like moustaches), it can involve playing video games, get involved with celebrities, perpetuate fandom, play with comic books or baseball cards,… I could go on and on.
Why a charity, instead of a business?
A charity structure (or nonprofit, or exempt organization) is not for everyone. It does have some restrictions, which we’ll discuss in a moment. But it has several advantages.
Leave the sales pitch out of it – Some people are absolutely unable to ‘sell’ their own services or products. Such folks are simply haven’t the courage to make a sales pitch for themselves. Yet, that same person might be the top fundraiser for the school; the church, temple, or mosque; the Little League; etc. Clearly, those people may have a harder time surviving in the business world. But…running a charity? Perhaps they can handle that.
Turn unemployment into a new career path – Right now, over 8.3% of the U.S. workforce is unemployed. What’s worse, over 9 million people are under-employed. They have accepted lower-paying jobs just to keep the mortgage paid and to put food on the table. When you have been unable to find a job in your field or at your pay-grade within three months, odds are – you won’t. Perhaps you can turn your passion into helping others with a non-profit organization.
Stop being unemployed – change your life!
Perhaps being out of a job is a blessing. You now have the time to stop and think.
Step one:
Decide. “What would I love to do with the rest of my life?” If you don’t know, take some time to think about things and activities that make you happy —it could be anything! The sky is the limit when it comes to your future.
Step two:
Decide how to turn this into a non-profit organization. Will it be a charity? A membership organization? Look at the range of things a 501(c)(3) organization may do. You can do anything except get involved in politics or influencing legislation.
Step three:
Write your mission statement – a short paragraph about your organization’s purpose. It not only identifies what you do; but helps you narrow your focus to a specific set of goals.
Step four:
Walk through the steps outlined on the BizFilings site, to establish the groundwork for your organization. Watch the BizFilings Small Business Roundtable on Nonprofit Organizations.
Note: One of the key things you must understand about exempt organizations is that you don’t own it. Be very careful about who you put on your board of directors. They can vote you out of a job. So select people you really trust as voting officers or directors. Better yet, set up an honorary, advisory board of wise, connected and skilled people. They can help you grow, without voting you out.
Step five:
Decide how you will raise funds, after your initial donation. Will you have paid members, will you be able to raise enough donations from individuals? (Viral campaigns on the Internet help somewhat.) Will you chase after grants, or hit up your corporate pals for money? Or will you have one or two major fund-raising events a year. You will need to lay out your fundraising plan for the initial application to IRS and your state. You will need some mock-ups of brochures or flyers or advertising pieces you intend to use.
Step six:
Work out a budget. How many people will you hire and pay vs unpaid volunteers – and how will you attract them? How much will you get paid – and when? Rent? Or work from home? Read the information on the IRS’s Exempt Organization website. They have an entire section on the Life-Cycle of an Exempt Organization.
Step seven:
Have BizFilings set up your nonprofit organization
Then, go forth and prosper!
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Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered for free. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches tax courses at IRSExams.com and CPELINK.
If you’ve filed for a DBA, permit or business license in the state (or states) where you do business, you might think you’ve covered all your bases. And you might be right.
There’s nothing foreign about Foreign Qualification — although the name often gives the wrong impression to small business owners. 
