Charities & Tax Law Changes

This post is in: Business
No Comments

Some old tax strategies just plain don’t work anymore. This is especially true when it comes to charities and charitable organizations. Law changes at the end of 2006 really impacted some ways of giving.

As part of the First Class Lounge I answer questions like this every week. This week I was asked about setting up a Family Foundation as a way of building up assets without paying taxes.

The old strategy was to follow along with the Kennedys (no relation) and Roosevelts by moving all assets into a foundation. Then let the foundation sell the assets and pay no taxes. Well, so far so good. The problem occurs when someone, without expert guidance, sets up their own foundation and doesn’t get the proper IRS designation. Then, they take the fact that they have a corporation or trust with the name of Foundation in the title as a “get out of jail free” card so they can then just completely evade the tax system.

It doesn’t work! First of all, no matter what anyone selling a “foundation in a box” tries to tell you, you can’t set up a foundation yourself. The entire process for approval as a non-profit is likely to take you at least 2 years. PLUS you’ll have some very strict rules once you’re set up. It’s not a way to evade or even avoid income tax. Charities have a very specific purpose – they are used to do good in the world. There are definitely ways to maximize your giving with charities. But, using a charity or foundation or “church” as a way to simply evade income tax doesn’t work. And, at some deeper level, really feels wrong…but that’s just my opinion.

For the specific questions I received on this topic and my response plus some strategies on how to depreciate property after you’ve moved it from your own name into an LLC or LP, you’ll want to see the online workshops running this week as part of the First Class Lounge sessions. Remember it’s free for the first 30 days.

Leave a Comment