Funding - Unlike many nonprofits whose work is supported by donations from the public, a private foundation is funded by an investment of cash, securities and other assets from the founder. Activities - Nonprofits provide various types of services for charitable or educational purposes. A private foundation’s principal activity is making grants to nonprofits to support their activities. Tax Status - Like other nonprofits, private foundations are exempt from income tax. They are, however, subject to a one or two percent excise tax on income generated by investments. [2] X Research source
Tax advantages - They can be significant. As an individual, you can donate up to 30% of your annual income to a private foundation and receive a tax deduction. Controlling your philanthropic activities - Unlike other planned giving vehicles, a private foundation allows you - the founder - to tightly control what types of charities receive support, as well as the management of the assets funding that support. Supporting a pet cause - If you have a cause that is dear to your heart, you might want to set up your foundation to fund charities that are working in that area. Creating a legacy - You might choose to name your foundation after yourself, to carry on and associate your family name with good works. You could also consider naming the foundation after someone you want to honor. Involving your family - A private foundation can be a way to get your family members involved in philanthropic activities. You can name them to the board, or hire them as staff.
You can get as specific as you like, depending on your interests. Before you decide on your causes, it’s a good idea to do research to learn about the needs in that area and the organizations that are involved in that work.
Verify that your proposed foundation name is not registered to another corporation. This can often be done with an online search. Draw up Articles of Incorporation, which is the legal document that governs the management of your corporation. If you are handling the process yourself, look for templates online for incorporating a nonprofit entity in your state. [4] X Research source Identify your board members. Most states require that new corporations have at least three members serving on the board of directors. You will name them in the Articles of Incorporation. [5] X Research source Pay the required filing fees.
Some states require nonprofits to have by-laws and some do not; check with your state’s Secretary of State to be sure. Even if you are not required to, it’s a good idea to have by-laws as a reference document, as you will occasionally need to provide documentation about the items covered in them.
Prohibits or limits transactions where conflict is an issue Requires board members to disclose potential conflicts Requires board members to recuse themselves from making decisions in which they have a personal interest Establishes guidelines for requiring competitive bid processes for transactions over a certain dollar amount, to ensure that organizations are getting fair value.
Selection of grantees - You can decide to give grants only to organizations that you identify yourself, or to accept grant proposals from charities who want funding. If you choose the latter, you can decide whether you want to allow only proposals that you solicit, or whether any eligible organization can apply. Application process - If you opt to receive applications for funding, you’ll need to decide what your process will be. What information do you want to know about the proposed project or organization? It can be as simple as a form or a letter mailed to your foundation, or a very detailed proposal, according to your preference. Whatever you decide, your guidelines should carefully and specifically spell out what you want from applicants. Grant ranges - You will need to determine how large your grants will be. This will be determined in large part by the size of your endowment and how your investments are performing. Calendar - If you intend to accept proposals, you will need to decide how often you want to review them. You can set any schedule you like, from a rolling basis to once a year.
Download and complete IRS Form SS-4, Application for Employer Identification Number. Your EIN will be mailed to you after your paperwork is processed. Call the IRS Business & Specialty Tax Line at (800) 829-4933. A representative will take your information over the phone and issue your EIN at the end of the call. Complete the Internet EIN application. At the end of the process, you will receive your EIN.
A copy of your grant making guidelines Copies of your organization’s organizing documents (articles of incorporation, bylaws, etc. ). The correct filing fees. Check the IRS website to verify the current required fees.
