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Does nonprofit founder have to pay taxes?

Your Legal Questions Answered

Does nonprofit founder have to pay taxes?

I am the founder and CEO of a new 501(c)(3) charity.  I recently started paying myself a reasonable salary. Do I pay taxes on this income, and if so, should I file it jointly with my other taxes or separately?

All income is subject to federal income tax in the United States unless there is a specific exemption in the Tax Code.  There is a specific exemption for 501(c)(3) charities, but not for the people who work for them. Doing good often means that you have to pay less in taxes than people in other sectors, but only because they are paid more than you are, whether or not they do more good. The IRS places no moral judgment on compensation.  It applies its appropriate percentage to all. All of us get to keep only what we make after we pay our taxes.

You should report your new income along with your other income on your regular Form 1040 individual tax return. There is no way to file separately for different sources of income.

If you already have employees and have a payroll system for withholding and processing necessary reports, you should be able to add yourself to the current system without much difficulty.  If you don’t already have employees, you will have to set up a process for withholding the federal taxes and perhaps state or local taxes if applicable in your jurisdiction.  You may want to pay for a service to take care of those details for you, especially if you anticipate hiring other people in the near future.

Tuesday, February 4, 2025

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