Maximize Your Tax Deductions With A Nonprofit-501 c3 (Nonprofit Tax Information Get BIG DEDUCTIONS!)

- Hi guys, my name's Toby Mathis. I'm one of the founders of Anderson Law Group and today we're going to be talking about how to use a nonprofit for maximizing everything from tax savings to asset protection. It's kind of weird that we're going to be talking about using a nonprofit until you understand what it is they actually are. A lot of us are used to hearing the term 501(c)(3) and that's because that's the section of the code, 26 U.S.C. is the internal revenue code. So it's 26 U.S.C. 501, t

hat covers exempt organizations and C3 just happens to mean the types of organizations where you get a deduction, a charitable deduction for giving it. So this is going to be religious, education, and charitable organizations that are doing things to help society. The easiest way to conceptualize this is if the government could be doing it, but I'm doing it, then chances are it's going to be something that I could run under a 501(C)(3). So lots of 501(c)(3)s that you know about are like hospital

s. There's lots of educational companies like Harvard. All the major universities are actually nonprofits. Then you have the United Way, the American Red Cross, all these. The NFL, up until a few years ago, was a nonprofit. There are people that provide housing that's low-to-moderate income housing or housing for veterans or housing for single moms, you fill in the blank. If it's helping out a group then chances are it qualifies as a nonprofit. That's a topic for another day if we could just tal

k about real estate with a nonprofit. But, I just want you to understand that this is the section. The way it's set up, and I always put it into three categories. Number one is the state. That's what do the states view it as and what do I have to do with the state to create something? The next one is 3rd parties, and then the last one is the federal government or the IRS. Easiest way to look at it. I use the fed because I like saying state and fed. So what is a 501(c)(3)? It is a nonprofit corpo

ration set up with the state, and a corporation has bylaws. And ordinarily a corporation's going to have shareholders. The biggest difference between a nonprofit and a for profit is a for profit is there to profit an individual, give money and make money for an individuals, if you're shareholders, and a 501(c)(3) we don't care about the shareholder, it's for community benefit. So there are no shareholders there's just directors. So we have the bylaws and then we have directors. Now you, you buff

s out there that love law and know that you could also have board of trustees or regents or all these other things, the end of the day there's a governing body. There's no owners of a 501(c)(3). And then to the IRS it's just an exempt. So the easiest way to think about that is you don't pay tax and if you don't pay tax with the feds you don't pay tax with the states. And this goes for like a lot of different things. Sometimes you can be exempt from real estate taxes. Sometimes you can be exempt

from sales taxes. There's all sorts of exemptions but the one we care about the most right now is that federal taxes, so we can avoid taxation with a nonprofit. So when yous et up a nonprofit, set up with the state, you create a body for it, which is the bylaws, and then you submit all that to the IRS. And technically, if you want to follow along and be a little bit nerdy it's a form, it's an application, it's a one, a 1023 application where you're trying to get exempt and wait to get your exemp

tion. Now here's the beautiful part about a 501(c)(3). A 501(c)(3), this, remember when this is approved, and it could be a year, it could be two years. Sometimes they ask a lot of questions. For us, we've done over 3,000, we're typically within the six to nine-month period. It relates back to the date that you set up the corporation. And this is really important because if you're doing tax planning before the end of the year you could literally set something up during the year, fund it, receive

the tax benefit, and be applying for your exemption and it'll relate back to the date. And we've never had one not receive its exemption. So I could say with almost 100% certainty that you're going to get your exemption. Depends on what you're doing. If you're doing something that's in the wheelhouse of things that have been done before, 100%. If it's something that's novel or new or kind of crazy, then ya know, we have to get through the question and answer with the IRS. Now here's why it's im

portant. Whenever you're doing tax planning it's kind of like this. We're going to have different categories that we can fall into. So we're used to being, pretend this is people, this is a family. We're used to W-2 wages where it's just taxable to us. And we think, oh, there's not much I can do for tax savings. I know that I have this thing called Schedule A which is itemized deductions, but it has to exceed my standard deduction, and you get all into the tax mumbo jumbo. If you're an individua

l you may not have a lot of options. If I'm a business and I'm a 1099 or I'm receiving a K-1 through something like an s corp, now I might have some options on moving some money around and the first thing we look at is other taxpayers. So as an individual our other taxpayers that we have the option to give money to that we can still deduct are things like IRAs or what are called qualified plans or 501(c)(3)'s. When I'm a business, and let's say, let's just say that this is an s corp so this is a

n 1120S s corp in that I am just an employee of it. Now I have a little s box, that can do something else. That could actually pay other, maybe my child, maybe my kid, maybe somebody else that's working in the business for me. I can pay them W-2 and I can write it off and then they can go ahead and fund things. Now, because I'm a business I get a different type of retirement plan. I can actually use a 401K, which allows me to defer up to 18,500 of my wages in this year and then if you're over 50

it adds $6,000 to it, so it's 24,500. So we have some other choices. Now here's what's cool. If you're the s corp, or here we still have this 501(c)(3) that we can always contribute to. So we have other tax brackets that we can use and this is where it gets very, very important in tax planning. This is called income shifting. Rather than have the money hit me personally let it hit somebody else's return. This is an exempt organization, or that's an exempt entity, the 401K. This is an exempt. So

if I put money into it I'm not going to pay tax on it. In fact, I'm going to get a deduction if I do it right. Same thing here. No tax, all I get is a deduction. Here that's just a deduction but here this thing can still grow. This thing can still grow. These are very powerful tools as a result. If I give money to my child they can spend it however they want but they still have to pay tax on it. These guys don't. So I'm pointing you to a few where I get a deduction and it doesn't have to pay ta

x on the receipt of that. Now before you go, "Oh Toby, that's really neat and dandy but why do I care?" Well, because as of 2018 I can write off up to 60% of my adjusted gross income. That's a pretty powerful tool. So if you make $1,000,000 you could pen a check to your 501(c)(3) for $600,000. And if it's an organization that's doing something like, again I'll use an example of low-to-moderate income housing, I can write off the entire 600,000. Now a lot of people say, "Oh, that can't be." It's

been done for years. In fact, we have a president that took advantage of something very similar in a conservation easement that netted him to mean quite literally on just Mar-a-Lago it was I think $6,000,000 plus was the deduction on doing what's called a conservation easement, which is giving it to an organization that's a conservation organization, he gets the difference between the fair market value and what it's worth when you give the restriction on the use of the property. You don't have t

o remember all that. All you have to know is that you get big tax deductions. You can do that too if you want to and it just depends on what your appetite is taxwise. It's one of the few ways where a W-2 wage earner who's making a lot of money could have a very positive impact on their tax bill by pushing it down. Now, the other reason that 501(c)(3)'s are so potent is because nobody owns them you don't own it. So they can't take it away from you. So from an asset protection standpoint it's a ve

ry, very effective tool because no matter what's going on out in your life if you have a child that's exposed themselves to amazing amounts of liability that you're going to be responsible for, this is something that no matter what they, the size of the creditor is, no matter how vicious a lawyer they have, no matter how hard they come after you, this is something that you will always control but they can't take it away from you. And for some of you guys, you're doing social good, you're using t

his stuff and you actually want to help people, you're helping organizations and you don't realize that you could run that as a nonprofit. Now this is where it even gets more potent. Just to throw one more thing at ya, is that when we look at this 60% of adjusted gross income, that's if you're giving cash. You could also give property. And the way it works is if you give long-term property like let's say a house that you fully depreciated or something along those lines, that 60% goes to 30% if i

t's long-term property. But it's the fair market value. So imagine you bought a house for $60,000. Imagine you depreciated most of that house so it had the land value but then you depreciated it over many years and you have almost no basis in that property any longer. It's down to, its tax basis is like 10,000 bucks. You could give that house and whatever its fair market value is, let's say that the house has gone up from 60, now it's worth 200,000. That's your deduction. The only limit is 30% o

f your AGI which means if your adjusted gross income is $1,000,000 your maximum amount you can write off from that type of deduction or that type of gift is going to be 30%, so $300,000. So you would get the full amount in that year. Now if you ever exceed the 30% or the 60%, you just carry it forward for, I think the carry forward is about six years. So you just carry forward into future years and continue to knock it off. So I hope you're seeing, like a few of you guys might be goin' (puzzled

exclamation) this might be interesting, have a bunch of rental properties. Do you mean that some of these could qualify as a nonprofit? Yes, and we could actually contribute 'em, we would get a fair market value deduction, the nonprofit now owns it, the nonprofit could actually go to the state or the county where it's located and seek an abatement of the real estate taxes its paying and watch your cap rate jump up. Some of you guys that are real estate savvy understand what I just said. The rest

of you guys, just know that it's a pretty effective tool and it's worth learning more about. If you want to learn more about it spend some time on our website or absolutely come to one of our nonprofit workshops. (mellow uplifting music)