When you create a nonprofit, you can put yourself in any position you want within the company, with a salary you set. The IRS expects that you’ll pay yourself reasonable compensation for the services you provide. It judges reasonableness on the basis of comparable salaries for comparable organizations.
But unless you have another income source, you’ll need to pay yourself at some point so your nonprofit provides a living wage. Paying yourself can feel like a big step for a young organization; fundraising becomes higher stakes.
The IRS allows founders to pay themselves a salary. However, it applies the same rules as other nonprofit salaries. There is no guidance on how much founders can pay themselves; CEOs and founders decide. But the IRS will penalize excessive amounts.
Dissolution of Nonprofits
In fact, some states refer to nonprofits as non-stock corporations. If a nonprofit dissolves, you can only distribute remaining money and property after paying debts. Then, a dissolving 501(c)(3) must distribute assets for tax-exempt purposes after paying debts.
Structure and Payment
The way you structure your nonprofit makes a difference for the ability to pay staff, pay yourself a salary, and qualify for grants. The IRS is mainly concerned with avoiding conflicts of interest and nonprofits only benefiting directors/officers. People who hold a position can be paid, even though directors and officers cannot be paid.
For full-time nonprofit visionaries, wondering about, “How much can I pay myself?” is common. The law only requires reasonable compensation. But even if reasonable under law, potential donors’ opinions provide a subjective check. No set percentage of revenue dictates salary; it depends on the donors and public perception.