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Create a Private Foundation As the Legacy and it is Benefits to You and also Yours
Do you enjoy furthering worthy causes, reducing taxes, and imparting to your own future generations your interests and work. Do so by forming a personal foundation. This short article summarizes some of the advantages of doing this.
A private foundation is a 501 (c) (3) organization (i.e., a charity) that does not qualify underneath the tax code like a "public charity." Private foundations are subject to certain taxes that do not affect public charities. The tax code limits the deductibility of gifts to personal foundations in ways that do not apply to public charities. IRS publication 557 outlines the restrictions on private foundations.
A personal foundation typically must an annual minimum of about $25,000 - from endowments, annual contributions or both - to make grants. If your estate has more than $5 million you can easily handle this.
- Private foundation tax breaks:
As at tax break, you are able to establish a flow-through foundation. It converts appreciated property into cash and then distributes the money to public charities. However it doesn't build up an endowment. The benefit, here, is that you can contribute any highly-appreciated assets without selling them yourself which may result in significant capital gains taxes on you. Individuals may deduct cash donations to some private foundation up to 30 percent of the adjusted gross income (AGI) and appreciated property - at their fair market price Up to twenty percent of their AGI. All contributions specified by a will are fully deductible for estate tax purposes.
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Your foundation can be a non-operating foundation making only grants to help fund the efforts of other organizations or individuals. The alternative is an operating foundation, which runs a facility or institution like a museum or research lab. Your foundation's purpose is often as broad as world hunger or as specific as you desire.
Of course, private family foundations must operate based on tax law, including distributing at least 5 percent of assets every year and paying a 1-2 percent tax on investment income. However, as part of your overall estate plan, a private family foundation decreases the amount of taxable assets in your estate. You can make gifts to your foundation without having affected the annual gift tax exclusion or even the gift tax credit, too.
- Control of the private foundation and family participation:
A major attraction of the private family foundation for top value individuals may be the greater control it gives them when compared with making a lump-sum donation to a public charity or to a stiffer charitable trust. While a trust instrument can be difficult to change, a private foundation incorporated as a nonprofit can adjust its mission with time.
Having a private family foundation, you can involve your family - for generations - directly within the issues and activities that mean the most for you. They can receive salaries as trustees, directors or employees from the foundation when they legitimately serve in those roles and justify their salary.
But developing a foundation requires careful consideration and planning.
