I know a little about this.
I've been treasurer (and tax prepper) for a small non-profit. My spouse is a volunteer for a fairly well-known military charity whose staff barely make a living wage ($30K/year or less) but whose CEO makes in excess of $125K/year. That's what you pay for an exec & rainmaker, but the charity's finances are struggling.
Spouse was also Interim CEO for a charity that has millions of donations every year, a reserve fund in the high seven figures, and a CEO salary of $140K/year. (She donated her salary during her brief tenure.) The #2 & #3 employees of that charity earn $100K/year and $75K/year, and #3 probably deserves a substantial raise to attract a qualified exec.
So am I just a sanctimonious bastard for trying to give myself a feel-good karma point by doing something like this?
Well, I don't actually know about that part. But your heart's in the right place.
Would I be better off donating to other charities instead?
I think so. See more below.
Volunteer or find a paying job for charities?
That has not been a good experience for either me or my spouse. I would much rather donate my money than my time. This is especially true of organizations with dysfunctional employees and/or boards of directors. You become painfully aware that quality salaries buy quality employees, but I don't know how to solve the directors problem.
Hospitals?
Don't know anything about that.
I have thick skin, so feel free to tell me it's a boneheaded idea.
It's a good idea, but I doubt whether it's what you want to do with your time. It can work fine when it's done according to state laws and IRS requirements. But, no surprise here, it's... work.
Has anyone started a charity that pays for itself and enough to sustain your own food and shelter (living wage)? Care to share the pitfalls and tips/tricks?
I arrived halfway through the process.
DISCLAIMER: I'm not even an accountant, let alone an expert, and I've only done this once. I'll describe my experiences and let one of you more credible financial professionals step in where I get it wrong. Since there are 50 states, there are probably at least 49 other ways than I've seen done.
First you decide what your charity is going to do (its mission) and make sure it qualifies under the IRS' 501(c) guidelines. Most non-profits are 501(c)3 organizations.
Next you register your charity with the IRS for approval. Most people use a tax accountant and possibly a lawyer for this step, but it's within the capability of a mere mortal who's persistent and willing to slog through a lot of drudgery. The IRS will eventually award approval subject to five years (!) of probation.
Then you register your charity with the state (annual reports) and set up a non-profit checking account. (Banks & credit unions may do this for free, but the account will not earn interest.) Now you're ready to start your fundraising, yay!
Oh, wait. The IRS wants to make sure that your 501(c)3 is not used as your personal
piggybank foundation. To prove that you're in compliance with the rules for nonprofit charities, your next five years of Form 990 tax returns will document that you've raised the vast majority of your operating funds from sources other than your own assets. (I'm sure that there's a way to set up your own personal foundation to give your money away while paying you a healthy salary, but I bet it's not tax-deductible.) Along with this part of the tax return, you have to document your major donors and your major sources of income. Ironically "non-profit" and "tax-exempt" does not equate to "not paying taxes". If you have business income unrelated to the charity's mission then you pay tax on that income. For example, the non-profit I volunteered at collected cans & bottles for the recycle deposit. Even though the money came from the recycle center with cans/bottles collected by volunteers, and even though the money was used for the non-profit's program expenses, it was still considered unrelated business income and we still payed state/federal tax on it.
Another charity operates a
souvenir bookstore at a national monument. Their mission is to educate the monument's visitors, so everything they sell in the bookstore has to have an educational purpose. Books, videos, puzzles, board games, kid's models: no problem. T-shirts? Business income. Key chains & cigarette lighters? Profitable but not necessarily the image you want to show to the public. Also business income.
By state law, your foundation also needs a board of directors. They need to have execs (Pres, VP, Sec, Treas) and they need to have meetings... which require minutes. You have to report your actions each year to the state, although the forms are fairly boilerplate.
OK, now maybe you're really ready to start your fundraising. I think asking donors for money requires bigger chutzpah & cojones than I'll ever grow. I've watched fundraisers in action, and I've seen them obtain six-figure checks, but it's a relationship-building process that takes a 40-hour workweek. You haven't even paid yourself a salary yet.
I actually know a woman who paid herself a salary to run a foundation. Her father had set up a eight-figure charitable foundation and was dispensing funds. He died suddenly and somehow she became the head of the foundation. At the time she was a Navy O-5 with more than 20 years of service, so she immediately retired and started collecting her military pension. Then she changed into a different uniform ("civilian executive attire") and started her new career. She was the boss but she had to deal with a staff and a board of directors. It involved a lot of travel (to the sites they gave money to) and fundraising (for other donors) and I'm sure every expense of her salary & benefits was relentlessly pecked at by the board. In other words, she'd traded one job for another freakin' job that paid about the same yet had no prospects for advancement.
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So how do you give money to charity without creating yourself a full-time job? Instead of starting a charity, I'd use a charitable gift fund like Fidelity. You can take the tax deduction when it makes the most sense to donate the money, and you can distribute the donation when it makes the most sense for the charity. Even better, you can distribute your donations anonymously and avoid all the unsolicited mail and charity appeals.
I suspect that Buffett is giving his billions to the Gates Foundation because he thinks Melinda will do a better job with it than he could.
However, it's possible that spouse and I will accumulate more assets than we can give away during our lifetime. If nothing else, we'll hold on to a few hundred thousand dollars of longevity funds or self-insure for long-term care. Our daughter could inherit it all, but I worry a lot about affluenza. Instead it might make sense to have our surviving assets put into a charitable foundation (for example, college scholarships for worthy homeschool/highschool grads) and put our daughter in charge of the foundation. She could draw a reasonable salary (or at least pay her expenses).
Will we really do that? I don't know. We haven't made the decision yet. However we've told our daughter that she won't inherit enough to make a difference in her life, so that keeps her motivated to make her own differences in her life...