A charitable foundation is an organization that focuses on philanthropy and social welfare (such as educational, religious, or other serving the public interest or common good). And here are eight steps on how you can start a charitable foundation:
1. Define the Philanthropic Objective of the Foundation
Generally, starting a foundation requires a lot of work, dedication, and passion. Thus, it is essential to define the objective of the charitable foundation that you are creating.
It must not focus on the development of yourself but on the foundation itself, questions like “What sector of communities I focus on” “What kind of partners should I have or surround myself with” and “Where will I see the foundation in ten years?”, “How do I maintain everything?” and “How do I help other people, especially those who are not part of the foundation’s scope?” – and you must be able to answer these.
Once you have found the answers to the questions stated, you must be able to draft the objective or put it into your actions. Because the foundation will reflect who you are as a person.
2. Create a Mission Statement
Creating the foundation’s mission is also essential, as it clarifies what is crucial and who your stakeholders are and offers guidance to your objective. Answering the following questions can help you create a mission statement:
- How do I get funding and help from other organizations, corporations, or international communities?
- How should I do it?
- What are the processes needed?
- Who am I doing this for?
The answers to these questions convey your mission. Thus, it needs to be action-oriented, short, and emotionally compelling. Additionally, it serves as the framework for developing your plan. Your strategy is your plan for how to carry out your objective, which is what you do.
3. Create the Name of Your Foundation
Choosing the name of your foundation is also essential, and it must not be picked at random as it must be thoroughly processed, and it can’t be done overnight. The name must express and represent the objectives and passions of your foundation, and this will aid in drawing attention to your cause and winning others over to it.
A charitable foundation is evident in its name. You can decide to name your foundation after a hero or specific event in your community or country or the group of people you are serving because giving a foundation a name that is appropriate for the cause and supports the mission statement helps inspire and draw more supporters to the cause.
4. Hire a Legal Team, Financial Advisors, and Establish a Board Structure
Starting and establishing a charitable foundation requires a team. Thus, you must hire a legal team and financial advisors to assist and help you with everything from legal paperwork, estate planning, charity donations, securities, and investing support.
And once you have hired your team, you must establish a board structure where there are designated people for the department – this allows you to see how your manpower is working together in pursuing the objectives of your foundation.
5. Apply for an Employer Identification Number
You must apply for an employer identification number (EIN), regardless of how you set up your charitable foundation. Even if you don’t plan to hire people and staff, the IRS demands that you acquire an EIN. The number will serve as your foundation’s tax identification number (TIN), much like a person’s Social Security number (SSN).
6. File for Tax-Exempt Status With the IRS
The second to the last step is to submit the foundation’s paperwork to the IRS and apply for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code by completing Form 1023 and ready the necessary supporting documents.
7. File for Tax-Exempt Status with Your State
Submit any further papers necessary to receive tax-exempt status from your state after the IRS has approved your tax-exempt status.
8. Always Follow the IRS Private Foundation Guidelines
Again, starting a charitable foundation is no joke because you must always follow the IRS private foundation guidelines, especially you need to:
- Every year, give away at least 5% of the investment assets of your foundation.
- Grants must only be given to other nonprofit organizations or for educational scholarships.
- Must pay an additional 2% excise taxes on the investment assets of your foundation.