Do you have aspirations of making an impact in your local area, but feel overwhelmed at the thought of managing a charitable contribution? Or maybe you feel motivated to give back, but aren’t sure of how to do so; maybe you’re not sure how much to give, or exactly what organization it would best serve.
If charitable giving is one of your big financial goals, or giving to charity is something you want to work into your financial plan, you’re not alone. Many of the families we work with place increased focus on philanthropy once they achieve their more traditional primary goals like buying homes, saving for college, and funding the lifestyles they want.
For these families – and for you – it might be worth considering getting involved with a community foundation. This gives you the opportunity to financially support a charitable cause, while providing the added benefit of putting dollars to work in your own neighborhood.
What Is a Community Foundation?
A community foundation is a charitable entity that typically focuses on serving a specific area. They help consolidate the power of individual donors and families who want to make charitable contributions by pooling funds together and directing them into a specific investment.
Community foundations allow donors to give back with a variety of strategies, making it easy to align your specific goals or interests with the method of donating that can help the organization and fit well with your overall financial plan.
The Benefits of a Community Foundation Over Other Charitable Donations
The idea of a community foundation was new to me when I moved to the Finger Lakes region of New York in 2012. But over the years, I learned more about this way to give back to a specific community, and by 2018, had joined my local Community Foundation Board.
In the past, I donated to various organizations in an effort to give back. These were the kinds of charities we might typically think about first when asked what groups we support, thanks to their name recognition: think organizations like the United Way and the Red Cross.
While I know these nonprofits do important work and make an impact, as an individual donor, I never felt like my contribution meant all that much. I certainly never knew exactly where my dollars went to work.
With community foundations, however, you can essentially “give where you live.” Through our Community Foundation, I’m able to see my donated time, effort, and dollars go directly to helping my neighbors.
A Community Foundation Can Help You Achieve Your Charitable Goals While Saving You on Taxes
Feeling like you are making a true impact is certainly a big incentive for many of us when it comes to donating to a community foundation (rather than the traditional, national organizations). But there is also a pretty big financial reason to consider this: the tax breaks you can receive.
By working with a community foundation, you may deduct up to 30% of any gifts of closely-held, long-term appreciated stock at its fair market value from your adjusted gross income (AGI). The same gift that you make to a private foundation may only be deductible at the cost basis of the stock, up to 20% of your AGI.
And if you make a cash gift (rather than donating appreciated stock) to a community foundation, you could deduct up to 50% of that donation from your AGI compared to a 30% deduction for a cash gift to a private foundation.
How to Support a Community Foundation
You have a few different options when it comes to achieving your charitable giving plans through a community foundation.
The first is through a donor advised fund. Money you contribute to a donor advised fund must be committed to charity, but how, when, and where the funds are directed is up to you.
You can also look into field-specific or impact funds. If you know there is a specific type of charity you’d like to support but aren’t sure exactly which organization to choose, these funds can help direct your donation to broad categories like Children, Animals, Social Impact, or Education.
Finally, you can consider setting up some kind of scholarship program. This may require an ongoing commitment on your part, or part of your contribution can be soliciting donations from others over time to keep your program funded. You will likely want to direct the initial donation into some kind of investment, so it acts as an endowment for the future.
What Should You Give?
When we think about philanthropy, it’s easy to call examples of wealthy patrons to mind. But you don’t have to be a billionaire to give back.
The exciting part about making charitable giving part of your financial plan is that you don’t have to commit to giving large sums (or giving over and over again each year if that doesn’t align with your other financial goals).
If you wanted to start a scholarship for a specific cause or group, you could seed the program with a lump sum; for example, say $25,000 as a one-time initial contribution. You could then invest these funds and have the scholarship pay out $1,000 per year to a deserving recipient. Alternatively, you could commit to funding the scholarship with $1,000 gifts each year for 25 years.
There are so many options and strategies that you can use to support your community foundation, and every single one can make a big impact in the place you call home.
