It was recently announced that Jeff Bezos planned to give most of his wealth away to charity. Over the past decade, announcements of this kind have been very common among some of the wealthiest people in America. The giving pledge, started by billionaire buddies Bill Gates and Warren Buffet, has become the popular thing to do for some of the world’s wealthiest, and it is really showing just how kind and generous some of the wealthiest people on Earth can be. Or does it?

If you don’t like cynicism, you probably shouldn’t read further. But here’s the reality: It benefits to be charitable – from a tax perspective. I hate to be cynical, but in our world, you must always keep your eyes open to reality. That’s because it is so easy to fool people. Because of video reels, social media stories, and the desire to get things quickly, people are often quick to judge and fail to investigate anything beyond a couple of minutes of reading the first take of a news story. Even when we read about something to “research,” I believe we are subconsciously looking for merely our own confirmation bias.

Here's the reality. Any 501c3 of the tax code qualifies as a “charity.” So, what all is included under this definition? It really means that the organization doesn’t seek to make a profit for itself and that it uses some of the proceeds for a noble cause with certain limitations such as staying out of politics. Side note: In the 2016 presidential election we debated over which candidate's charitable foundation stunk the least). So let’s look at an example: A company brings in $200,000 of tax-deductible donations from several kind folks. This nonprofit has a husband and wife that run the operation and pay themselves a salary of $40,000 each (this is certainly reasonable if they spend a great deal of time working in it. It’s probably not if they have other full-time jobs and only do this only occasionally on the side). There are also expenses such as rent, utilities, and ancillary operational expenses associated with running the non-profit that total another $20,000 per year. Do the math. . . that’s $100,000 per year in expenses. Assuming every other dollar goes to a noble cause, that means that half of the money raised actually goes directly to help someone in need (hopefully). Now, let’s look at an extreme example of expenses: the Kids Wish Network, which allocated less than 3% of its money raised to the noble cause it purports. When you really start to investigate, it gets kind of sad. The last thing I want to do is give $50 to a cause and then wonder how much of my money actually goes to help someone in need vs pay for someone’s trip to Chipotle.

Okay, enough cynicism. Here’s how starting your own non-profit can be beneficial for you. Do you hate paying taxes? Do you have a noble cause that you believe in such as researching an illness, helping a certain group in need, or just working to make the world a better place by doing xyz? Did you know that we can work on this good cause and use money that we would otherwise be paying to the government to fill a pothole? Good news: It is not hard to start a non-profit. In fact, it is very easy. Once your non-profit is in place, you can choose to raise money by contributing your own money to the non-profit. Once the funds are inside the non-profit, you can direct how those dollars are used. You can use them to pay related expenses and compensation to anyone helping you run the non-profit (spouse, children, friends, etc.). And, of course, you can use a chunk of the money to go toward the noble cause of your choice that you were already going to give money to. Sounds great, right? It is.

Is the reality true that some or most of the money will not go toward those in need? Yes, it is. But if it is all just your money and you aren’t misleading others by taking their money and making false promises, what difference does it make? That’s what most of the wealthy people that start their own non-profit would say. This is money you would either A. Spend on yourself or B. give to the government in tax revenue. The only one that is really being slighted in this situation is the IRS because they are missing out on your tax dollars. And the government doesn’t seem to mind, so long as you stay within their very loose guidelines. One last thought to ponder: if you are looking to sell your business for a massive tax gain, is there a way to wipe away most of your tax liability using a strategy in line with this thinking? Why yes, there is. If this or something similar is on your mind, I’d love to talk. Hopefully, by now, you can see why just about every entertainer, athlete, and wealthy entrepreneur has their own non-profit.