How to Setup Your Own Charity | Mark J Kohler | CPA | Attorney

Hi, Mark Kohler here with another tax and legal tip. Let's talk about setting up your own charity. How cool would that be? Something that you can help control and get donors and make the world a better place. Well, it's an exciting topic. Now, there's a lot of pros and cons and some how to's here. It's a huge topic, so let's dive into it and see where we go. Now, I want to go through the good news, the bad news, the how to's and explain right off the bat that I've got a full blog article on this with lots of bullet points in detail. If you're serious about this, you want to hit on that link below and get to the article. It'll help you out a ton as you prepare and consider to take the step forward. Now let's hit three bad news items. First, you have to have a charitable purpose. Now, some of you may think, well, Mark, that's why I'm doing this. How can that be bad news? Well, I do get clients call me sometimes thinking, oh, I want to set up a charity that can get donations and then it's going to hire my business or it's going to give me a job or some fangled way that it's going to help their business. If you have that ulterior motive somewhere in your plan, let me tell you right now, it's not going to work. The IRS sees through that. They've been doing these for years, approving them or rejecting them based on these little side deals that are kind of charities in a sense, but they're really to help your business. Don't go there. So the first issue is, which some may consider bad news, others think of it, this is the reason I'm doing it. You got to have a charitable purpose, something to make the world a better place, whether locally, regionally, in the United States or in the world, I don't care. But have a charitable purpose that's not to benefit you. Number two, there are rules to running a charity. You can't just open up a bank account and think, oh, I got a charity now. No, you've got to go through some steps, which I'll come to as the third item of bad news. But the second one is operating it. You're going to have to deal with some ongoing rules of following procedures, filing an annual tax return, reporting to your donors and the people that you're trying to benefit on a website that's very transparent. But once you get the rules down, it's not Too bad. But just realize you go in with some requirements and I want you to have your eyes wide open as you go through the plans that you're going to have to implement throughout the year to maintain it. Now, number three, I hit it. That's right. There's some setup procedure. It doesn't happen overnight. Now, I set up charities here at our law firm around the country every month. We've got one in the works at all times and I love it. It's really exciting to talk to these people about their passionate ideas. But again, it might take two to three months to get it approved. Now, there's a nine month retroactive effective date. So if you started the paperwork on January 1st and we didn't get approved until April, I can still backdate the charity to January 1st and you could start getting donations right away. But you've got to realize that there's some paperwork involved and it's time consuming. There's also a cost. We charge around three grand at our law firm. You're going to see places charge a little cheaper than that and sometimes $10,000. Oh, but let's just do it cheaper and you'll be part of a larger charity or something like that. There's a lot of options out there, but usually for your own charity, you're going to be looking for around two to four grand to get it set up and it's going to take you two to four months. So keep that in mind. Now, four pieces of good news. First, donors get a tax deduction. So that's a great way to get people excited about your business because they're going to get a tax write off whenever they give. Your little business, which is really a nonprofit, really is about is it. It's going to be ran like a business, so people that donate money to it are going to want to know where it's spent and they're going to get a tax write off to give you money for your charitable purpose. So keep that in mind as you go out and sell. This idea is that you're going to get to do some pretty cool events, whether they're bake sales or a golf tournament or a black tie affair. Think outside of the box. Think auction and raising money. Number two, related to number one, getting those amazing donors to give you money allows you to really interact and work with some amazing people. People that may not normally give you the time of day, but if you're able to bring up a charitable topic, you can work with some pretty fantastic people that are really well networked. And so I guess there is kind of a side benefit to you in your professional life or your business is that you can get some exposure working with some really neat people. And I think that's a good thing. I think that's an okay thing. Now you're not doing the charity just to make connections, but I would consider a side benefit to having a charity is the people that you get to interact with. Number three, benefit. You get to control where the money goes, goes with this charity. Now what I mean by control is you're going to have a board of directors and you're going to be a part of a team. This is not your business. There's no shareholders, no one owns this thing. It's ran by a board. And you might be the chairman of the board for the first couple years and it's going to be ran like a little country, it's going to be a democracy. But the neat thing is it's not like you're giving $1,000 to United Way or the Salvation army or American Red Cross. And you may not know exactly where your thousand dollars is deployed. Well, with your own charity you do. And you're going to have to let your donors know where the money spent to how much of that thousand dollars actually goes to the bottom line benefit of someone for that charitable purpose. But the exciting thing is, is you get to control the overall operation with your board. And this is where a lot of people find the benefit of a charity is that they're not just giving money into some bottomless pit, they're really, really involved in the process. Number four, yes, you feel good. And it's true. And I think it may sound a little cheesy to say, but one of the major benefits of having a charity is that amazing benefit of giving back and making the world a better place. So be really excited about that charitable purpose because it's going to take a lot of blood, sweat and tears. But the feel good benefit payoff at the end is amazing. Now finally a little how to. I talked about the time, process and the cost. But in the how to, when we set up a nonprofit for our clients around the country, we always start with a nonprofit corporation, not an llc, not a trust. Just the way we do it. I think it's simpler and easier. And in all 50 states you can set up a non profit corporation. We get a tax ID number, we set up your board, we go through your bylaws. I have a memo, I give out to our clients of what I need to get their charity off the Ground and I'll send that to you for free. Just send me an email@markarkjkohler.com and say, Mark, I want to set up my charity. Give me that memo and I'll send you a memo of what we're going to need and where the retainer is at in the process and get things started. But we're going to start with a corporation, a list of all the information I need, which is going to include budgets and forecasts and kind of what your plan is in a mission statement and a description of your purpose and all that good stuff. That that's what's going to come out of that list that I'm going to give you for that memo. And then we're going to start preparing your application with the irs. And this is where it takes time and there's some costs involved. And that's why setting up a nonprofit is a process. It's a project. So that's how we go through it. We set it up at the state level, then we apply to the irs. Then we interact back and forth with the IRS until it's finished. We charge a flat fee for a reason because we don't want you to feel like it's a bottomless pit of just giving the law firm money. You can budget for that, you can raise money for that. The filing fee with the IRS could range anywhere from 4 to $800, depending on the type of charity you're going to do. It could be a 1023 or a 1024 application. Right? It sounds like a lot. Well, that's why you want to work with a law firm that knows what they're doing, because it is legal documentation. It's not an accounting firm process. It's a law firm process. And shop around and give our office a call, too, and shop it out with us to see how much we would charge and how we could help you out. But that's the process. It's not a sales pitch video. This is not an infomercial. I want you to know what to expect as you go out there and shop around. In summary, I think this is amazing idea. Don't give up on it. Even if it's an item that you're planning to do in the next three, five, or ten years. Put it on your wish list. Put it on your bucket list. It's on my bucket list. And I've got some pretty amazing ideas that I want to implement someday. You know what? It kind of helps us get up in the morning and keep working hard. Because someday we're going to be able to give back and get that huge payoff on that feel good experience. So don't give up on your dream. Thanks so much for watching and if you found that helpful please look in the description below. 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