How Do You Start a Foundation?


Quick Answer

The process of starting a foundation consists of pre-formation planning, formal incorporation and applying for tax-exempt status. Pre-formation planning determines the appropriate type of charitable organization to form, formal incorporation results in the foundation becoming a legal trust or corporation, and tax-exempt status is granted based on IRS criteria.

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Full Answer

  1. Plan essential elements

    Start by outlining the foundation's goals. Determine how it is to be funded initially and supported on an on-going basis. Determine who is to sit on the board, how much control you intend to maintain over the funds and tax ramifications.

  2. Incorporate the organization

    Choose whether the foundation works best as a corporation or trust. Foundations are governed under state laws, so this decision may depend upon the rules and regulations of your state. To incorporate, it is required that the donor receive formal education on the legal rules governing foundations, which vary by state.

  3. Apply for tax-exempt status

    Submit IRS form 1023, "Application for Recognition of Exemption Under Section 501 (C) of the Internal Revenue Code." The IRS uses the information provided to determine if your organization should be granted status as a 501(C)(3) organization. This status gives your organization recognition as a tax-exempt charity. It also entitles your organization to certain tax deductions.

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