Giving to charity, no matter how you do so, is personally rewarding. Giving through a private foundation enhances giving by providing flexibility and control. It can also yield significant tax benefits in several key areas:

Income Tax. When you give to a private foundation, you may be eligible to take an immediate tax deduction: For cash gifts – up to 30% of Adjusted Gross Income (AGI); for long-term appreciated securities – up to 20% of AGI, generally deductible at fair market value (FMV); and up to 20% of AGI for other long-term appreciated assets, generally deductible at cost basis.¹

Give more in any one year and you may be able to carry the deduction forward for the following five tax years. An income tax deduction can be especially useful if you have had a high-income year – perhaps through receiving a substantial bonus or exercising stock options – and want to minimize your tax liability.

In addition, under some circumstances, giving to a private foundation may enable you to take an income tax deduction for donations that would not be deductible if made directly, such as certain donations for the benefit of individuals, scholarships, or foreign charities.

Capital Gains. Contributing long-term appreciated assets to your private foundation may eliminate capital gains taxes on unrealized gains. This can be very helpful if, for example, you hold a concentrated position in employer stock purchased at a low cost basis through a stock purchase plan. Donating these assets to a private foundation lets you diversify your portfolio without incurring capital gains tax liability.

Estate Tax. If your estate is substantial and potentially susceptible to federal estate tax, contributing a portion to your private foundation during your life, or leaving it to your foundation at your death, removes the gifted assets and future appreciation on those assets from your taxable estate. This reduces your tax liability while allowing your heirs to maintain control of charitable distributions through the family foundation, thus perpetuating your values.

Overall, donating cash or property through a private foundation enables the assets to grow in perpetuity until distributed as grants, free from income tax and capital gains tax on future appreciation. This is especially useful if you have assets that you do not need and are considering leaving to charity. A good example might be an Individual Retirement Account (IRA) left to your foundation at your death (under current law, IRAs cannot be used for charitable contributions during your lifetime).

The money invested by the foundation is subject only to an excise tax of 1% to 2%. Thus, the assets may grow faster in a foundation, and you may ultimately give more money to the causes you care about.

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