If there’s a cause you’re passionate about, you might consider starting your own foundation to support that cause. With Americans donating trillions of dollars to charity every year, a foundation can be a huge commitment. However, foundations also make a huge impact in society.
The more work you do in the beginning, the better it will be for your foundation in the long run. Before you start your own foundation, here are some things you’ll need to do.
Know the Laws
Your foundation must be organized solely for charitable, religious, educational, scientific or literary purposes to be considered a private foundation by the IRS. It must also operate as its own independent legal entity, and be controlled and funded by a single individual, family or business (not public fundraising).
Establish Your Own Rules
A foundation is essentially a business, and needs rules to keep things running smoothly. You’ll first want to write your by-laws. By-laws will include rules regarding board members, the foundation’s fiscal year, etc. You will also need a conflict of interest policy. This will outline what to do if a board member’s personal interests conflict with the goals of the foundation.
Establishing funding guidelines will outline how your funds will be distributes. You’ll decide who receives donations, how and if outside groups can apply, how much you’ll give, and how often you’ll receive grant proposals. Managing funds properly is critical for foundations.
Contact the IRS
When you first start a foundation, you want to become incorporated in the state you plan to conduct business. You’ll have to legalize your foundation’s name, name at least 3 board members, pay required filing fees and draft legal documentation. A lawyer would be helpful for this process.
You will also need to apply for an Employer Identification Number (EIN) through the IRS, which will be used to identify your foundation. You should get one even if you don’t plan to hire any employees. You’ll also have to fill out Form 1023 to receive tax-exempt status. With the form, you’ll also need copies of your funding guidelines and organizing documents.
As far as taxation, foundations pay an annual tax of 5% of the previous year’s net average assets.
Once you’ve started your foundation, you’ll need donations to keep it running. A well-designed website and online presence can do wonders. You’ll want to clarify how donations will be used and make it easy for people to donate. Word of mouth is also a powerful way to raise awareness for your foundation, which will hopefully lead to donations.
If you have the funds to do so, you could consider hosting an annual banquet for both people who have donated in the past and those who might donate in the future. It is a great way to show appreciation and increase your foundation’s visibility in the community.
Running your own foundation is a massive responsibility, but it is a great way to give back to a cause you really care about.