Setting Up a Charity

Dan is setting up a 501(c)(3). He wants to do it with as little money as possible since there isn't any money coming in yet. How does he go about setting the organization up?

QUESTION: Dan in Montana is setting up a 501(c)(3). He wants to do it with as little money as possible since there isn’t any money coming in yet. How does he go about setting the organization up?

ANSWER: The organization needs to be established, and you get an EIN number, which is basically an IRS payroll number. Then you turn in the paperwork for the 501(c)(3), and it takes six to eight weeks to get that approved.

You can set up a corporation and get your tax ID number and begin to take donations. The only question is if the donations will be tax-deductible. If the 501(c)(3) is not approved, then the donations will not be tax-deductible. You might get it approved in this calendar year, but you might not.

Anyone who makes a donation this year is probably not going to be able to deduct their donation. If you have any fundraising events coming up, I would set those up after the first of the year since you should have your 501(c)(3) approved by then.

But you need to incorporate and get your tax ID number. I would have an attorney, maybe someone in your church, donate a little time to you and help you get this stuff filled out and turned in. Honestly, we have two 501(c)(3)s—one for our family foundation and one for donations we do from Financial Peace University in non-profit settings—and they are truthfully a pain in the butt to get set up.

It’s a lot of paperwork, so you need to get all of that set up as soon as possible and get it turned in so that you can begin formal fundraising at the first of the year. You might find some people who are enthused enough about what you are doing to fund some of it initially without the benefit of the tax deduction.

Someone might give you a couple thousand dollars to take care of the legal fees and get the paperwork done; that sure would be handy. On a limited basis, someone might make a donation to your church and then the church could choose—and take a tax deduction—to support your ministry. It doesn’t have to be a 501 to do that.

I would not do that as your long-term game plan, but it will get some money flowing to get the legal work done, get the accounts established, and get the basic foundational things laid. Churches can’t do designated giving without the potential of losing their standing with the IRS, but there is a reasonable amount of that which can be done without causing any problems.