What Is a Private Foundation?
A private foundation is a 501c(3) organization that is generally controlled and financed by a few sources, such as an individual, family or corporation. Private foundations typically receive most of their support from one or a few donors and investment income.
There are two types of private foundations:
Non-operating foundations: This is the most common form. They focus on grant-making to other nonprofits and individuals rather than running their own programs.
Operating foundations: These foundations operate their own programs, like a museum or library, and are a hybrid that combines features of both a public charity and a private foundation.
Private foundations must distribute 5% of their assets annually in grants or charitable activities. Contributions are tax-deductible up to specific limits defined by the IRS, and are subject to a small excise tax, starting at 1.39%.
Common Foundation Myths
You need to be wealthy to start a foundation
False: Anyone who makes regular donations to charity may benefit from using a private foundation. As long as you follow IRS guidelines and distribute at least 5% of the assets every year, a private foundation is a perfect vehicle to manage your giving.
You lose control of your money once you put it into a foundation
False: Founders retain full control over the foundation’s leadership, mission, and grantmaking. The foundation becomes a tool to direct your philanthropy more purposefully.
It’s complicated and time-consuming to set up a private foundation.
False: There are specific rules, but with our support, the process can be completed smoothly, and the entire process can be completed in a matter of weeks.
It’s too much work to manage a private foundation.
False: There is a time commitment to making sure your foundation is staying compliant, but we offer affordable ways to manage your foundation so you can focus on supporting your favorite charities.