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How much can I pay myself if I start a 501(c)(3)?

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How much can I pay myself if I start a 501(c)(3)?

I recently launched an organization focused on helping victims of disasters and crises, and enabling others to find opportunities to help those affected by disasters. It primarily consists of a fairly comprehensive website and online community that I am paying for out of my own pocket. I am interested in creating a 501(c)(3) and accepting donations. I'd like to dedicate all of my time to the cause. If I form a (c)(3) corporation, how much can I pay myself? For example, if I bring in $20,000/year, can the (c)(3) pay me the full $20,000? If I bring in $100,000, can I be paid $60,000? I've read through the guidelines and this is the statement that gets me every time - "must not operate for the benefit of private interests such as those of its founder, the founder’s family, its shareholders or persons controlled by such interests."

You can pay yourself a reasonable compensation for services actually rendered.  The IRS judges reasonableness on the basis of comparable salaries for comparable organizations, not on the percentage of income of the employer organization that goes toward salaries.  There is obviously a vast disparity in types and sizes of organizations that affects the percentage of organizational income that goes to the salaries of the top officers.  It is hard to compare organizations on that basis, but relatively more possible to compare the compensation for similar jobs in similar organizations.  You ought to follow the “safe harbor” procedures to assure yourself that the compensation is reasonable so that you don’t face a possible claim for excess benefit taxes if you are paid “too much” for your work.  (See Ready Reference Page:  “Charities Must Avoid Excess Benefit Transactions”)  But it does not sound like that will be a real problem in the immediate future.

The language you quote is directed to the prohibition on private inurement or private benefit for the “insiders” of the charity.  But founders have to be paid if they work for the organization.  The IRS is concerned that any benefit they personally receive is “quantitatively and qualitatively” incidental to the public benefit of the organization’s activities.  (See Ready Reference Page: “Charities May Not Confer Private Benefits”)  Your reasonable compensation would not seem to cross the line.

Friday, October 17, 2014

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Comments

If she pays herself a salary, what employee classification is she? An independent contractor or an employee that would have to withhold taxes?

 

A paid oficer would ordinarily be treated as an employee.

—Don Kramer

 

Found information to be very informative!

I found this incredibly helpful. I'd heard that nonprofits were evaluated, in part, based on the percentage of income going to their officers but I can't see how that would be at all compatible with a startup nonprofit. Thank you so much for clarifying this. It'll really clarify things for me and my cofounder.

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