As an entrepreneur or small business owner in today’s world, making money is important to you. Having autonomy over your work and making your clients and customers happy is also important to you. But so is giving back. Maybe you donate a percent of your profits to a cause you love, or you volunteer at a charity close to your house. As your business grows, though, you may be wondering how you can give back even more. This has been a frequent topic of discussion among Worth It listeners, so we finally dove into it on this episode.

In this episode, we talk about the 3 ways you can give back and make an impact: donating cash, starting a donor-advised fund, or creating a private foundation.

 

HERE’S WHAT YOU’LL LEARN 

• • 03:20 The misconceptions about private foundations

  • 04:11 What we learned about community funds from a luncheon

  • 04:46 The idea of leaving a legacy that goes on long after you’re gone

  • 05:05 How to support your heirs and the community with your funds

  • 07:30 3 different ways to give and have an impact

  • 08:06 The easiest way to give back

  • 10:17 How to participate in a donor-advised fund

  • 11:30 Why community funds are becoming so popular

  • 12:23 The downfall of creating donor-advised funds or private foundations

  • 14:40 How a private foundation operates

  • 17:30 What it takes to create (and run) a private foundation

  • 19:08 The two types of private foundations

  • 20:38 What it takes to donate to a donor-advised fund

  • 22:44 The benefits of donating cash

Give Back Option #1: Cash Donations

This form of giving back involves simply donating money to a charity of your choice. If you’re passionate about your local animal shelter or a national nonprofit like the American Cancer Society, donate! You can get a tax deduction for giving to charities if you itemized deductions, but you have to give enough to past the standard deduction to make itemizing worth it.

If you’re a big cash donor, you might want to talk to your CPA or CERTIFIED FINANCIAL PLANNER™ to make sure you’re accounting for those donations on your taxes. Other than that, cash donations are pretty straightforward and easy for anyone to do, regardless of their assets. Remember: even $5 can go a long way!

Have some cash to donate? This option might be best for you because it’s:

• • • Hands-off
    • Easy as pie
    • Instant impact (you don’t have to do anything)

 

Give Back Option #2: A Donor-Advised Fund

A donor-advised fund is a charitable giving fund that is created to manage donations on behalf of an organization, family, or individual. Basically, a donor-advised fund is created by a person or business and donors then advise on how to donate the funds. Funders get some control over the money and how it is distributed to charities, but for the most part, it’s a great way to give back to causes without investing a ton of time.

This is similar to the endowments you see with higher education; people can donate into an endowment, but then the school or organization can decide what to do with the money. Like the idea but want to keep it local? You can also start a community fund, which gives back to people and causes in your specific community but operates in a similar capacity to the donor-advised fund or endowment.

If you’re wondering if a donor-advised fund is right for you, here are a few signs:

• • • You have a few thousand to start it off (you can open a donor-advised fund with any amount of money, but $5,000 to $10,000 is a good rule of thumb)
    • You want some control to ensure your money goes to a general cause (the arts, animal welfare, etc.).
    • You don’t want to manage day-to-day operations or be heavily involved in the charities you support

 

Give Back Option #3: Private Foundations

There are two types of private foundations: operating foundations (you have an active part in the charities the foundation is supporting) and non-operating foundations (you’re just dispersing funds to charitable organizations). When you think of private operating foundations, think of Oprah and Bill Gates. Their foundations do a lot of work and they’re often the “figureheads” of the foundation — but you don’t have to be. You can also start a non-operating foundation and be as hands-on or off as you want with the charities your foundation supports. However, you’ll still likely need to be involved in the foundation in some capacity.

A lot of times, these private foundations are created after someone dies and their wealth is used to fund them, but you don’t have to wait for that! It’s possible to add to a private foundation over the course of your life, contributing to it until you are happy with the “starter funds” and can begin operating as a private foundation.

There are also tax benefits to starting private foundations, which can get a little confusing. Operating foundations can deduct up to 60% of their adjusted gross income, while non-operating foundations can deduct up to 30% of theirs. Of course, once you get to this level of giving back, you’ll need a team of financial pros to help you with these tax strategies and decisions.

Is a private foundation right for you? It might be if:

• • • You have over $500,000 to start it off (as a general rule of thumb)

• • • You want complete control over where the assets go
    • You want to manage it and be involved in day-to-day operations
    • You’re OK with distributing 5% of the total amount each year

 

How Will YOU Give Back?

Now that you know the 3 most common forms of giving back, we want to know: Which one is right for you? Hopefully, this episode of Worth It has highlighted the different ways you can give back in your personal life and business — plus the pros and cons to each option. Of course, it’s not always cut and dry.

If you have questions about donating or setting up funds like this, you should definitely speak to a CERTIFIED FINANCIAL PLANNER™ who can help. And if you’re not ready to give like this quite yet, just bookmark this episode so you can reference it later!

This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

Resources & People Mentioned

• • The Toujours Planning Quiz — Are we a good fit for your financial planning needs?
  • Find all of our workbooks and more inside the Resource Vault

 

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