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A Guide for Starting a Private Foundation or Philanthropic Business

By Kayla Matthews

Today’s consumers are becoming increasingly conscious of their spending habits and keep close tabs on where their money is actually going.

This has led many companies to reconsider their philanthropic efforts and begin supporting charitable causes. And, if you’re one of these businesses looking to boost both your revenue and your giving, investing in a Private Foundation or philanthropic businesses may be the move.

The Benefits

There are a number of advantages to becoming a philanthropic business or starting your own Private Foundation. One such advantage is an improved reputation. The public will likely notice the goodwill your company generates and will form a favorable opinion of your brand. This may lead to increased sales and even create a new market, especially in impoverished communities or those without prior knowledge of your products or services.

Moreover, if you donate to a local cause or organization, you’re taking company profits and reinvesting them into the same community that invested in you.

Another benefit of becoming a charitable business is your efforts will likely attract top talent. Younger workers are looking for more than just a paycheck — they want to make a difference. So, naturally, they wish to work for a business that values charitable giving. In fact, 79% of employees want to work for a company that contributes to society. And 55% would choose to work at a socially responsible company, even if it meant a lower salary.

Are You Ready?

So, if you want to attract both customers and employees by giving back to the community, it’s time to seriously consider whether you’re ready to start your own private foundation. Of course, one of the most important things to think about is the amount of money you can dedicate to such efforts. If you’re going to create an in-house volunteer team or commit to donating to a certain charity, there is no minimum cost requirement. However, you must still determine how much you can afford to allocate to philanthropy efforts.

And, in regard to starting a private foundation, traditional guidelines suggest a $1 million to $2 million investment. However, this amount may differ depending on your company’s size and monetary situation. And your initial investment will likely not amount to this large sum. Rather, your business and fellow donors will donate to work toward this goal over time.

It is important to note, though, there is a payout requirement for private foundations. This requires non-operating foundations to distribute 5% of their fair market value of investment assets to charitable efforts each year.

Starting Your Own

Once you’ve decided how much money you can afford to invest in philanthropic efforts, it’s time to begin putting your plan into action. Here are a few important things to keep in mind when creating a charitable giving initiative.

Decide on a Foundation Type

One of the first steps to becoming a philanthropic business is deciding what kind of giving you’ll be taking part in. There are a few options to choose from — partner with a non-profit, start a private operating foundation or a private non-operating foundation. These are three very common avenues your business may choose to take.

Partnering with a non-profit may be the simplest since you’re simply joining a cause instead of creating your own. However, this still entails a fair amount of time, planning and organization. For example, you’ll want to dedicate time to find an ideal nonprofit with which to partner, recruit and manage volunteers, — and willing employees — define volunteer roles, develop an orientation program and actually go volunteer.

Similar to a nonprofit partnership is a private non-operating foundation, which grants money to charitable organizations. And, as previously mentioned, regulations require these foundations to pay out a certain amount of money each year in grants. A private operating foundation, on the other hand, distributes funds to its own charitable programs. This type of foundation must either spend at least 85% of its income, or its minimum investment return, on direct charitable expenditure — excluding grants.

Know the Tax Requirements

The IRS requires all private foundations to submit an annual 990PF tax return since your business won’t be considered a public charity. However, you’ll still be tax-exempt as long as you donate the minimum required amount according to your foundation type.

In order to receive your tax-exempt status, you’ll need to file the correct paperwork and fill out Form 1023 which will inquire as to your foundation’s financial information, grant-making guidelines and other details. Additionally, the IRS may have questions about your application, so be well-organized and prepared to thoroughly answer any inquiries.

About the Author: Kayla Matthews writes about communication and workplace productivity on her blog, Productivity Theory. Her work has also appeared on Talent Culture, MakeUseOf, The Muse and Fast Company.

Featured Photo by Sandy Millar on Unsplash

The post A Guide for Starting a Private Foundation or Philanthropic Business appeared first on Successful Blog.



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