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Direct Your Charitable Efforts Your Own Way: Private Foundations

Charity Concept
Do you want to be able to direct your charitable dollars in a way that truly carries out your core interests and goals? Then you may find that a private foundation is the way to go. But most people aren't fully aware of how a private foundation differs from a straight charity or why it could be a good vehicle for their donations. 

To help you make the best choice possible, here's a rundown of how a private foundation could work for you.

What's the Difference Between Private Foundation and Public Charity?

While you may think that a charitable foundation is the same as a charity, they have several key differences. A public charity generally does the frontline charitable activity while private foundations support those charities - usually financially.

Public charities generally must have a specific charitable purpose and a particular set of goals in order to receive IRS special status. However, private foundations can choose either to be very tightly directed or support a wider variety of endeavors.

If it sounds like a private foundation has more freedom and less work, keep in mind that there are tradeoffs. For one thing, donations may be more limited in how much can be deducted from income taxes. Gifts to public charities are usually limited to no more than 50% of your adjusted gross income, while some foundation gifts may be limited to 30% of this amount. Private foundations also have to file the somewhat complicated Form 990-PF each year and are subject to an excise tax to offset regulation costs. 

Public charities usually have a larger board of directors who determine how to spend donated money and must meet certain requirements for how much is donated by diverse sources. Private foundations are often exempt from these and other rules in exchange for slightly less favorable tax treatment, limits on fundraising, and some extra paperwork. 

Why Choose a Private Foundation?

So, why form a private foundation if there are limits to their financial benefits? For most people, the increased level of control is a big factor. A very small group of people - such as a family unit, two spouses, or even one single person - can determine how to use the money and where to direct efforts. If you have diverse or unusual interests, this is a streamlined way to support several different goals with one pot of charitable donations.

You can also hold onto charitable donations for a longer period of time, allowing you to direct the money differently. And because a foundation provides monetary support to others rather than to physical activities, it could mean significantly less on-the-ground oversight and effort to ensure the funds are used in the way you want them to be used. 

Finally, you also may have more freedom to use tax-deductible charitable donations to support things that public charities may not be able to. If you want to support an individual person, for example, the IRS rules generally don't allow you to simply give money and still deduct it. But you could donate to your private foundation and receive the deduction. Then, the foundation can give money to individuals or other organizations in accord with your interests. 

How Do I Proceed Next?

Do you think that a private foundation may be just what you're looking for? Start by meeting with an attorney who has experience in charitable organizations and private foundations. At The Non Profit Assistance Corp, we can help you decide on the right organizational format and meet the legal requirements to set one up and keep it thriving. Make an appointment today to begin working toward your charitable goals. 


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