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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 41220
Experience:  Run my own successful business/contract law practice.
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I am starting a new company where excess profits are being

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I am starting a new company where excess profits are being donated to charity. Is a non-profit the best way to set this up and why.
Thank you for your question. Please permit me to assist you with your concerns.

That very much depends. By 'excess profits' do you mean all profits after all expenses are paid off, or a portion of profits above a certain percentage set forth within the company? For example will the company keep 5% of profits and donate the rest, or will all profits be donated regardless?
Customer: replied 3 years ago.

Thanks for the question. The company will meet salaries and opex, the balance will go to charity. We do expect to increase salaries, so if there are limits that must be met, I will need to know those

Thank you for your patience. Please allow me to assist you directly.

A non-profit is always far more heavily regulated and evaluated by the IRS. There are limits on the size of compensation, which changes on an annual basis and is based on 26 CFR 53.4958 for tracking 'excess benefit transactions' and on market rate for the type of work the employee is being tasked to provide. It would be up to you as to what to pay, but it would have to be based on the market value based on the position and the level of responsibility. The hard limit is generally around $110,000, as anything above it tends to make the individual 'disqualified' and under heavier scrutiny from the IRS. Otherwise, if you are seeking a purely non-profit basis, then it would make sense to go non-profit although please be sure to expressly define the scope of the non-profit. Unlike for-profit entities, a non-profit generally cannot go beyond the scope of their charter without re-applying to the IRS.

Good luck.

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