How are the funds treated when a non-profit is created for a family in need? Something for a terminally ill neighbor etc. Charitable for the donor? Gift for the family recipient?
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What kind of nonprofit was created? Are you sure that the right kind was created and that one is really helpful in this case? The general rule is that monies designated for a specific individual cannot be deducted as charitable contributions. Only contributions to a 501 (c) (3) would be deductible as charitable contributions and that is only one of many kinds of nonprofit. I do not have a cite but I suspect that a foundation for the benefit of one family would not be eligible for that status. There probably is a kind of nonprofit that would be fine to create but the only benefits I can see would be that any income it generated (remember that donations to it would not be income) might possibly avoid tax and it would be a legally separate entity from the contributor(s) if it got sued for some reason. Oh and if anyone is giving amounts that might otherwise trigger the need to file a Gift Tax Return then yeah creating a nonprofit would I believe get around that.
The impact on the recipient is it's a gift
I'm afraid a lot of taxpayers create entities to lower taxes but due to poor advice they pay more in expenses associated with keeping the entity legal including taxes owed by the entity than they save on their personal returns. -
Non profit
A non profit can be created to help channel help to a person in need. Large medical bills, etc. That non profit is NOT a charitable non profit. Any money given for a specific person, family, etc is a gift from the donor and a gift to the donee. Not deductible for the donor in any way. And if the gift is large enough from one person they might have to do a gift tax return. I have had to answer that question several times when I client comes in with a receipt from a fund raiser for a friend, only to have to tell them it is not deductible.AJ, EAComment
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