FAQs on Giving & Philanthropy

How to GiveFAQs

  1. Why give to a charitable organization?
  2. What giving options are available?

Foundations

  1. What is a foundation?
  2. How many foundations are there?
  3. How are foundations regulated?
  4. What is a payout?
  5. What is an operating foundation?
  6. What is the difference between foundations and charities?
  7. What is a 501(c)(3)?
  8. How can I check an organization’s 501(c)(3)?
  9. How can I find out if an organization is tax-exempt?

How to Give

  1. Why give to a charitable organization?

    By giving to charitable and philanthropic organizations we exercise our support for the goals, the people, and the purposes we believe in. It is our individual response to human needs; an opportunity to give is an opportunity to be involved. It is caring and serving. Philanthropy gives our wealth meaning, and engages us as stewards in the betterment of society.

  2. What giving options are available?

    Make a direct gift to an established charity

    Giving directly to charities is likely the most familiar route of giving to you. Most of us have been asked to lend our names, time, and financial support to a number of charitable causes. Educational institutions, religious organizations, hospitals, museums, arts groups, and other organizations have probably benefited. Perhaps you serve on boards of directors or advisory councils for some of these charities. The tax deduction for gifts of cash to charity can be up to 50% of your adjusted gross income for the year.

    Workplace giving is another means of making individual gifts to charity. Federated funds, like the United Way, EarthShare California, and others, participate in annual workplace giving campaigns that raise millions of dollars for distribution to local, state, and national nonprofit organizations. Additionally, many companies will match their employees’ charitable contributions and/or reward volunteerism, and sometimes offer the option of giving through automatic payroll deductions. Check with your employer for details.

    Create a family foundation or other private foundation

    Family foundations provide a forum in which family members and others can work towards common goals. Donors and their families may make decisions or delegate to an independent board of trustees or to a trust officer acting on the donor’s behalf. There are the key advantages of choosing to create a private foundation:
    • Personal Control and Flexibility
      Because a private foundation is actually a charitable trust fund or a nonprofit corporation, you retain personal control and flexibility over its giving programs. By making endowed gifts, your influence continues to make an impact for generations to come.
    • Tax Benefits
      Since it is a charitable organization it is exempt from federal income tax on its income, and your gifts to it afford you certain tax advantages. 
    • Perpetuity
      Another important benefit is that your funds continue to make an impact for generations to come and provide for the long-term needs of the organizations and the people you want to help. Foundation funds are invested and income is paid out annually in grants. By law, private foundations must pay out 5% of assets in grants and 1-2% excise tax on net investment income.
    Give to or through a community foundation or other public foundation

    Community foundations are local charitable entities that administer a number of donor advised funds primarily for local purposes, to solve community or regional problems, and to improve the lives of people in their geographic area. Because community foundations are public charities supported by donors from across the community, all contributions are allowed the maximum tax benefits, up to 50% of adjusted gross income. Funds are not subject to the excise tax and payout requirements of a private foundation.

    Giving to a community foundation allows you to help improve the lives of people in a particular community while supporting an entity that already exists to do the grantmaking. Many individuals, families, and corporations are creating donor-advised funds with local community foundations. You can name the fund, establish a broad purpose for the fund, or designate a specific charitable organization-such as the local library-to benefit. Family members may join you in recommending grants from the fund, however, the final decision on grant distributions rests with the board of the community foundation.

    Giving to a public foundation offers you a chance to pool your donations with like-minded donors in support of a particular issue or cause. Public foundations choose an issue or mission that they promote through grant-making and offer donors options for involvement.

    Develop a corporate giving program or a corporate foundation

    Companies can provide funding through a foundation or a giving program. In addition to grant programs that enhance the corporation's strategic business interests, corporate foundations and giving programs often match employee gifts of cash and volunteer time to nonprofit organizations. Because the priority is to serve those communities where company employees and facilities are located, companies may make "in-kind" gifts of products to charities and/or organize workplace volunteer efforts for the good of the community.

    The two main types of corporate philanthropy are:
    • Corporate Foundation
      The corporate foundation is usually started with a single gift that can become the endowment, which may be added to on an annual basis or when, and if, profits allow. Advantages that may appeal with this option include the ability to preserve the company's charitable giving during lean economic times and the ability to preserve the company's name in an era of mergers and acquisitions. The corporate foundation is subject to the same rules and regulations applicable to other private foundations.
    • Corporate Giving Program
      The corporate giving program, organized to make charitable grants, is established within the corporation. It receives its funding as part of each year's operating budget for the parent corporation and may be administered by the company or through a legally independent foundation.
    Establish a supporting organization

    If you are seeking to support a particular charitable organization and prefer close involvement with grant decisions, yet want an alternative to establishing your own private foundation, a supporting organization lies between a private foundation and a donor-advised fund.

    Since the supporting organization is identified with a publicly supported charity, the donor enjoys the tax benefits of a public charity, and the donor and/or donor's family may serve as members of its separate board. The mission of the supporting organization must also be compatible with the mission of the public charity with which it is identified.

    Cash donations, as with other public charities, are tax deductible up to 50% of adjusted gross income.

    Establish your own giving circle

    Many donors are discovering the joys of philanthropy by joining with other like-minded individuals to form giving circles. The common link may be that they are peers, colleagues, family members, or simply interested in a common area of interest (i.e., education, arts, the environment). To form a giving circle, donors pool their funds, invest them, and then make joint decisions about how to distribute the income and/or principal of these funds to other philanthropic or charitable organizations in the form of grants. Donors often commit to a giving circle for a number of years at an established dollar level. The pooled funds may be held at a community foundation, at a local bank, or at some other nonprofit or commercial entity that invests the funds and enable them to earn income.

    Create an operating foundation

     Establishing an operating foundation allows you to closely direct the charitable activities you choose. Private operating foundations are not primarily grant-making entities, rather they operate facilities or institutions devoted to a specific charitable activity as determined by the donors.

    Planned Giving

     Planned giving makes it possible for you to give to the philanthropy or charity of your choice while meeting your current income needs and providing for your heirs. To determine the ideal formula for you and your family, work with a qualified attorney, certified financial planner, or other professional financial advisor.
    • The charitable remainder trust, a popular planned giving instrument, lets you take a charitable deduction for your gift to the trust in the year in which the trust is formed. (Additional funds can be added in later years.) You then receive income from the trust for life, after which the assets pass to a philanthropic fund or charity that you have designated.
    • A charitable lead trust established by you provides for a regular, fixed amount to be paid to a philanthropic fund or charities of your choice for a specific number of years. At the end of that specified period, the remainder of the trust passes to your designated heirs or other non-charitable beneficiaries.
    In each case, your may designate a particular nonprofit organization or multiple organizations, your own private foundation, your local community foundation, or your own supporting organization to receive the benefits of your planned gifts. Please consult with your financial or legal advisor about the many other kinds of planned giving options that are available to you.

    See more about different types of giving on the “Ways People Give” section of the Forum of Regional Associations of Grantmakers’ website.

Foundations

  1. What is a foundation?

    Grantmaking foundations are nonprofit, charitable, tax-exempt organizations that provide grants to support a wide variety of charitable causes and concerns. They are created by gifts of money, stock or other resources from individuals, families and corporations that wish to dedicate some of their private resources toward serving the public good. These gifts or assets are typically invested and the income generated is used to make grants.

    Not every organization that uses the word "foundation" in its name is a private foundation, and the word "foundation" has no legal meaning in and of itself. Rather it is important to look at the activities of the organization and the IRS designation.

  1. How many foundations are there?

    According to the Foundation Center, as of 2007, there were 75,187 foundations in the United States. For more statistics, visit Foundation Center Stats.

  2. How are foundations regulated?

     The IRS and State Attorney General enforce the Internal Revenue Codes governing the operations of both private and public charities. The rules governing private foundations are stricter in limiting foundation activities than are those for public charities. For example, private foundations:
    • are required to pay out for charitable purposes each year an amount equal to 5% of the fair market value of their assets;
    • pay an excise tax of 1% to 2% on their investment earnings;
    • face limitations on lobbying or political activity;
    • are subject to very strict self-dealing or conflict of interest rules which ensure that there is no inappropriate private gain from foundation activities;
    • file an annual information return with the IRS listing: all of the grants made during the year: their investment holdings: the names of those serving on their Board of Directors; their application guidelines and procedures; as well as other information. These returns are public documents.
  3. What is a payout?

    The “payout” is the percentage of assets a foundation distributes to qualifying charitable organizations in a year. The IRS requires most foundations to pay out 5% of the fair market value of their assets for charitable purposes each year.

    While the 5% payout requirement establishes a basic floor for qualifying charitable distributions, many foundations in fact exceed this requirement.

  1. What is an operating foundation?

    Approximately 2% of all foundations in the U.S. qualify as operating foundations. An operating foundation is an organization whose primary purpose is to run their own direct charitable programs, they may also give grants. Because an operating foundation takes on many programmatic and administrative tasks, the IRS requires their minimum payout distribution to equal a minimum of 3.5% of the fair market value of their assets.

  2. What is the difference between foundations and charities?

    The Council on Foundations defines a private foundation as a nongovernmental, nonprofit organization having a principal fund managed by its own trustees or directors. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.

    Another difference between private foundations and public charities is that private foundations usually derive funds from a single source, such as an individual, family, or corporation. A private foundation does not solicit funds from the public. On the other hand, public charities generally fundraise through numerous sources to support programs. Some charities engage in grantmaking activities, however, their primary business is serving the public good through direct service.

  1. What is a 501(c)(3)?

    The Internal Revenue Code labels nonprofit, charitable, tax-exempt organizations as 501(c)(3)s. Almost all foundation giving must be granted to organizations that have 501(c)(3) status – with a few exceptions.

  2. How can I check an organization’s 501(c)(3)?

    First of all, all organizations with 501(c)(3) status must keep copies of their legal paperwork on file. If you are considering giving them a grant, ask them for their 501(c)(3) number and request a copy of its most recent annual report and IRS Form 990.Charities should provide this information in a timely manner and these materials should give a general idea of how the organization spends the money it raises. In addition you may check for public documents a several web resources, including Guidestar.

  3. How can I find out if an organization is tax-exempt?

    Go to the IRS' website on tax-exempt charities. From there, you can search for a charity and verify if the IRS has designated it as tax-exempt.