- Hi, guys, Toby Mathis here
from Anderson Business Advisors and Law Group, and we
are going over part three of a four part series on nonprofits. This part is How to Register
a Nonprofit Organization. And here's what I want you to
do first off is step way back before we even get into the questions, and I want you to think of
every entity in three parts. There's the part that
deals with the state. There's the part that deals
with 3rd parties like banks, lenders, donors, in the
case of a nonprofit
. And then there's the part that deals with the Federal Government, for taxation. So we look at the state. We look at 3rd parties,
and we look at the feds. Now with that in mind, I'm
gonna go through the questions. How do you become a 501C3? That is a charitable organization. There's 29 different flavors
and we're picking one of them, 501C3 which is religious,
charitable, scientific, amateur sports, prevention
of cruelty to animals, things like that, elder abuse. All those things fall
underneath
this 501C3. The reason this is important
is because 3rd parties get to write off what they give
you as a charitable donation and you do not have to
pay tax on that money. So how do you create one of these? Well you know there's
three different categories it falls into, so we need to
address each of those three. So we need to file
something with the state. And before we file it with the state, we should probably check in
with number two and three. How do donors wanna see it, and how do the feds
wanna see it? And based off of that,
we may chose differently on section number one. We wanna make sure they
all work in concert. So there's three organizations that we really have to be cognizant of. So the first thing we're
gonna do with the state is go with what the feds like see. And when you look at 501C3, it
says a trust or corporation. We're not gonna go down the trust route. We're gonna go plain vanilla
corporation with the state. We're gonna file a nonprofit
corporation with the state.
It's going to have by-laws
that show that it does not have shareholders because nonprofits
do not have shareholders. They're run by their directors only. It does not inure to the private
benefit of any shareholder. In fact, you have to magic language in both of these to comply. Once you do that, then
we apply with the feds for a tax identification
number, called and EIN. We get that number and
then we take all of this and we come up with a plan
that we put in an application with the Federal Gove
rnment
for an exemption, saying this entity should
be exempt from taxation. And when I say exempt,
it does not pay tax. That's really critical. And that is an application called a 1023. If this sounds complicated,
it is not once you do. But the first time you do it, it's gonna be a little complicated. That's why you use a
professional to do it, is to make sure that
these things are covered. You have about 29 months
from the date that you apply for your exemption to obtain
it or that it's relatin
g back to the date that you actually
file your organization. So here's a question we get all the time. I set up a corporation. I tried to file for my exemption. I was denied. Am I hosed? Am I not gonna get my
exemption letter now? No, that's not the case. We have up to a little
over two and a half years to get the exemption. We will need to answer the questions and make sure we're apply it right. So if you've ever been denied
your tax exempt status, it's because something was
deficient in your a
pplication. The vast majority are gonna be declined. We've been doing this for 20 years. We've done over 3400 of these. It's not unusual, not to get a
decline, but extra questions. When I see a decline, it's almost always because the party didn't
know what they were doing. With us, we've done these
so often we just say, alright here's the categories
we have to fall in. We're gonna vet it out
before we ever apply so that we only have to apply once. Maybe we have to answer a
few questions to make
sure that the officers who are
reviewing the file are satisfied. We've never had one not get approved. That's important. Next question. How do you start a
nonprofit with no money? It's really interesting you
say this because I just did a wonderful podcast with Meg Busing who runs Camp YouCan, the
Midwest YouCan organization. And she was a retired nurse. She actually had a traumatic head injury. She was making less than $10,000 a year, as you'll hear on the podcast, I'm not saying anything she
wo
uldn't want me to say. And she took this thing
and grew it into something really amazing but she wasn't
somebody who was making millions of dollars. A lot of times when we hear
about nonprofits you think of the superrich, the Gates of the world, the Vanderburgh, the Carnegie Foundations, the Trump Foundation, the Clinton Found... All these different organizations and you always think rich people. That's not the case. What happened with Meg, and she does a TedTalk on
this actually, it was amazing
. She's wonderful. Hopefully you'll be able to find the link in our YouTube page, you'll
be able to see it and watch it because she's such an inspiring person. But once you have that nonprofit,
now you can go to people say if you give me money,
you can write it off. You get a tax benefit. If there's a private foundation out there, an organization that is set
up to support other charities, they, by law, have to give
away 5% of their assets on an annual basis to qualify nonprofits. You are now one
of the
qualified nonprofits. So you can go after the
private foundations saying you should be supporting me. I'm the charity that you
should be supporting. That's how it can make money. Other things it can do is it
can actually do the activity. So, for example, if you're
going to do housing for vets, it doesn't mean that
you can't charge rents and things like that. It just means that it has to be for the support of a specific type of group. In this case, veterans. In which case, that money
come
s in and it is tax exempt. It's pretty powerful when really start digging into this stuff. So, can you start an
organization with no money and how do you start one? You get it set up and then you
go out and solicit the funds from 3rd parties to
support your organization. It could be as simple as saying, hey I have two or three
families that I need to help. Would you be willing to
sponsor one of those families? It's gonna cost you X number of dollars. You see this stuff on TV all the time. They'r
e like, hey you support a family or support this puppy, your $1, and we'll give you a picture. All those things are meant
to make a better connection between the donor and the
company that's actually receiving the funds and
the ultimate beneficiary of those funds which tends to be a person, or an organization, or a class
of people that needs help. And so it really does make a big one. So don't feel like you
have to be uber rich to start a nonprofit. That's just not the case. In fact, the opposit
e might be true. You just need to be passionate
about what you're doing. If you're setting up a
nonprofit specifically for tax reasons then I
would say you need to be reconsidering why you're
doing the nonprofit. You really should be doing
these because you have a passion about it otherwise
there's lots of nonprofits that could use your money
to benefit organizations and they're helping people
that you might wanna be giving your money to instead. What qualifies as a
nonprofit organization? It is
a gambit. It is quite literally, if I'm gonna say a nonprofit organization, the best example I can give you is when I was in a Rotary Club
which is a business club. The business club was a 501C6, I believe is what it would be termed,
a business organization. They meet every week. They're tax exempt,
but it's not a charity. Meaning that I can't give
it money and write it off. If I give it money as part of my business, I could write that off as a due for a club in which I might be generating busi
ness. But, this is not the charity. The Rotary has a foundation
which many of you guys know because it eradicated polio
or helped eradicate it in the United States for sure. Did an amazing job of attacking
something that was prevalent in making it to where we
don't even think about it that much anymore. But that was a 501C3. So the Rotary Foundation was the 501C3, the organization set up
for medical purposes. And then you have another nonprofit for the business association. So there can be diffe
rent things. What qualifies? Something that is benefiting society. The way I always describe this
is if you're doing something that the government could be
doing or that helps people, then chances are it could fall
into a nonprofit category. Prime examples. I have a lot of clients that
do residential assisted living and things like that. That qualifies as a nonprofit activity. I have clients that work extensively. In fact, I'll give you one example. I had two clients, one
of whom was an attorney
, a very successful attorney
and she was having difficulty doing transitional housing for folks that were coming out of prison
for non-violent offenses. It was women for non-violent offenses, meaning that they got wrapped
up, usually with the wrong guy or the wrong girl or
something, and got tied up into something where they
weren't a violent offender and they needed to not be in jail but they really should be in housing. And she would set up these
homes for clean and sober living for these wome
n that were
coming out and she could not get any traction as a
for profit organization. The second she shifted over
to a nonprofit organization is the second doors started
opening and all of a sudden they're like yes, we work with
those types of organizations. It's very interesting how that works. And all of a sudden she has a waiting list of here's the women we need housing for and she's literally buying up
houses to house these women and she has standing
orders for quite literally dozens and d
ozens of these women that are transitional housing and she's the one who they're gonna go to to place it. So that type of activity, by itself, qualifies as a nonprofit. You're helping a group of people. You're helping society. It's one of those things
that really benefits. Last question in this part three which is, how do nonprofit employees get paid? The same as any other employee. They are an employee of an organization. They can be paid as W-2 income which means they pay tax on that. Yes, whe
n you take money
out of the organization, it may be taxable, it's
a reasonable salary. People always say, oh my gosh you can't get
paid much of a salary. Are you kidding me? Nick Saban, probably the
most famous football coach in this country, works for a nonprofit, The University of Alabama. Just about every president
of every hospital works for a nonprofit. These folks get paid a reasonable salary. It's a reasonable amount. It doesn't mean they're gonna
make $10 million a year, well maybe in th
e case of
Saban, but it does mean that they're gonna get
fair market compensation. So I wouldn't be worried about
getting the money back out. Plus it can still pay benefits. It can still provide things
like an accountable plan. So there's lots of tax
benefits that can come out of a nonprofit and you
can still be paid a wage. In fact, you can even put
some of that money away in a tax exempt vehicle
or tax deferred vehicle as a retirement plan, as well. All of these things, they're
doable in the n
onprofit realm the same way as they're doable
in the for profit realm. What really matters is did
you apply for and receive an exemption from paying
federal and state taxes? And if you did, then you
don't have to pay those taxes. When you pay yourself out a salary, it's no different than a for profit. You pay tax on the
salary as you receive it. Hope that makes sense. (dramatic music)
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