At this point, you should have ideas about funding. Public charities seek public support from government grants, individual donors, private foundations and other public charities. At least 33 percent of revenue must come from small donors that each give less than 2 percent of the organization's annual funding. Foundations rely on private donations from a small group, individual, family or corporation [source: McRay].
Public charities have a few advantages over private foundations. They might find it easier to attract support from financially savvy individuals, since individual financial contributors can write off donations up to 50 percent of their income. However, the tax deduction limit for individual donors to private foundations is 30 percent. The amount of the donation itself isn't limited in either case, just the portion that qualifies for tax deduction [source: Foundation Group]. Public charities have slightly easier tax filing if gross revenue doesn't exceed $25,000; public charities with higher revenues and private foundations must file the more complex Form 990-PF. Because of these benefits, public charities must prove their qualifications for the designation, or they'll be considered a private foundation by default.
Private foundations do have some advantages, however; for instance, they can be run by families or individuals related by business. There are also less strict funding restrictions, though they have to demonstrate they're actually using their resources; the IRS requires minimum asset distributions of 5 percent annually [source: McRay].
What if neither of these options suits your needs? Earlier, we mentioned a third type of 501(c)(3), the private operating foundation, which has an administration similar to a foundation, but operates its own active programs. The rules are especially strict, though. A private operating foundation must demonstrate that it qualifies for the benefits of public charities while adhering to the governance regulations of private foundations.
When you've got your board together and your documentation in order, it's time to do some good. Our Lots More Information section has links to other articles about charities, nonprofits, public service and volunteering to keep your motivation going.
Related HowStuffWorks Articles
More Great Links
- Foundation Center. "What is a Foundation?" 2010. (March 23, 2010)http://foundationcenter.org/getstarted/faqs/html/foundfun.html
- Foundation Group. "Does Nonprofit, 501(c)(3) and Tax-Exempt all Mean the Same Thing?" 2010. (March 14, 2010)http://www.501c3.org/blog/frequently-asked-questions/nonprofit-501c3-terminology/
- Foundation Group. "What are the Tax Exemption Categories?" 2010. (March 14, 2010)http://www.501c3.org/blog/frequently-asked-questions/tax-exemption-categories/
- Foundation Group. "What is a 501(c)(3)?" 2010. (March 14, 2010)http://www.501c3.org/what-is-a-501c3
- Foundation Group. "What is the first step in starting a nonprofit?" 2010. (March 14, 2010)http://www.501c3.org/blog/frequently-asked-questions/first-step-starting-nonprofit/
- IRS. "Filing Requirements - Exempt Organizations." Dec. 7, 2009. (March 23, 2010)http://www.irs.gov/charities/article/0,,id=96103,00.html
- Kadlec, Dan. "Nonprofit Squeeze: Donations Down, Volunteers Up." Time. March 19, 2009. (March 23, 2010)http://www.time.com/time/magazine/article/0,9171,1886544,00.html
- McRay, Greg. "The Dirty (Half) Dozen Nonprofit No-Nos." Foundation Group. June 9, 2009. (March 14, 2010)http://www.501c3.org/blog/the-dirty-half-dozen-nonprofit-no-nos/
- McRay, Greg. "Public Charity vs. Private Foundation." Foundation Group. May 26, 2009. (March 14, 2010)http://www.501c3.org/blog/public-charity-vs-private-foundation/