NON PROFIT ORGANIZATION START UP & DONATIONS

[sammyk]

First Question: Is it possible to deduct charitable contributions on my individual tax return if I do not itemize? As far as I know it can only be done on the federal schedule A. Does anybody out there know of a different way?

I want to set up up a non profit organization to do charitable work with orphans and impoverished school kids in Europe and Africa. This non profit will be funded from a portion of our salaries(my wife and I) and may later expand to solicit/receive donations from friends who have expressed an interest in the project.

I need to know the tax implications of this:
2.If I set up the non profit, get tax exempt status from the IRS and I control where the funds go. Am I able to deduct these donations on my individual tax return?

From the people I have asked, I have learned that the IRS might have a problem with this as it might not be viewed as an arm's length transaction as I would be the donor plus have final control on where the funds go.

I do not want to do anything illegal or open myself up to perpetual audits from the IRS that will detract from the good we are trying to do.

3.If I set up the non profit, and give funds to a micro finance institution or project,how do I account for any returns(capital and/or any profit)?

4. Am I able to deduct costs of trips to the various projects in Europe and Africa as expenses on the non profit's tax return? Or can this be done on my individual return?

I would really appreciate the assistance of anybody out there who can give me direction on this project.

Thank you in advance.

PS:I know different states handle tax matters differently. I am a resident of Colorado

[Bashful]

This is not something you can do on your own without seeking an attorney to help you. There have been several court cases, civil and criminal, where there have been problems with setting up non-profit entities which are used and controlled by the persons who set them up. United States v. Heineman, 801 F.2d 86 (2d Cir. 1986) (upholding conviction for promoting use of purported church entities to avoid taxes); United States v. Adu, 770 F.2d 1511 (9th Cir. 1985) Heineman); Svedahl v. Commissioner, 89 T.C. 245 (1987). There have been some real abuses in this area also. So, if this is a legit thing you want to do, find an attorney who specializes in non-profit entities and set it up right. This attorney can also advise you on what is paid by whom, such as trips. There are also filing requirements involved, and you need to be up on all of it.

Frankly, I think you would be better off finding a good existing non-profit that does something similar to what you are considering. Volenteer at and donate to this entity. You will also be working with people who already have projects in the works, and your time and money will be better spent. I think it will save you a lot of headaches later on.

[Imalawman]

No question about it, setting up a non-profit is time consuming and laborious. If you go to IRS.gov and see their main page regarding non-profits it will give you a nice little chart of when and how to file the right documents. There are many things you need to do before you even consider filing your 1023. (incorporate, ss-4, bylaws, organizational mtg, various policies etc. etc.). Then you need to peruse pub. 557 http://www.irs.gov/pub/irs-pdf/p557.pdf. But I would strongly reccomend hiring an attorney. The IRS might not even approve your 1023 until you have at least a CPA. In your situation the IRS is most likely going to take a long hard look before they would approve it. And I'm skeptical they would, if it is structured as you suggested above.

Bottom line - hire an attorney or get involed with a pre-existing charity.