In the realm where financial acumen blends with personal legacy planning, strategic philanthropy is offering the blueprint for modern wealth management. Today's billionaire donors are engraving philanthropic intent into the spine of their economic and estate plans, demonstrating the continued prevalence of strategic giving for business owners. However, at the center of this flattening walkway is that complex, poignant, and always controllable private foundation.

Philanthropy History: Shifting From Popular Charity to Practical Giving

The very essence of philanthropy is the heart. In this day of generational wealth transfer and amid a thicket of tax codes, it is also a smart arrangement. The 501(c)(3) private exempt organization created for charitable gifts certainly makes a difference to the charity receiving the funds but also creates a significant tax deduction for the donor, a deduction that can be used over a five-year period to make sure it is fully maximized.

Unlike donor-advised funds, private foundations afford creative control in determining strategies or judging distributions and investments. That said, the brick-and-mortar setup of private foundations, stuccoed under IRS rules, may end up propelling the overlaid financial and philanthropic results​ when utilized astutely.

Tax Advantages: Giving with Precision

There is a full spectrum of tax benefits available that often come as a surprise.

  • Immediate Deduction: For example, donors can deduct up to 60% of their adjusted gross income (AGI) for cash contributions.
  • Capital Gains Minimization: Giving appreciated assets (like real estate or securities) to a private foundation stacks up as a neat way to avoid capital gains tax while producing a charitable deduction.
  • Family Employment: The foundation can legally employ family members, keeping wealth within the family.

Avoiding Pitfalls in Strategic Giving for Business Owners

The IRS exercises great scrutiny over private foundation operations. Here is an example that could land a foundation in a tax hole: Financial transactions between the foundation and a disqualified person, even the founder or any major contributor, may result in excise taxes as high as 200%. Such transactions must be corrected to avoid such excise taxes.

Good news: These are strict but feasible rules if professional help and proactive planning are in order, so it is essential to have the right team of experts in place to help navigate the tricky waters.

Read the full article about strategic giving for business owners by Khurram Chohan at Forbes.