Doing good, feeling better, and making a difference
At first glance, philanthropy and positive psychology appear to have very little in common. Philanthropy is a term generally associated with giving money to charities, doing good in the community, and creating social value.
Positive psychology usually conjures up images of an academic approach to emotional strengths and virtues that enable people to thrive.
But there is indeed a connection. After all, philanthropy, according to the classic dictionary definition, means a “love of humanity” in the sense of caring, nourishing, developing, and enhancing “what it is to be human” on both the benefactors’ and beneficiaries’ parts. The connection is right there.
Here's why this connection should make you feel better about amping up your charitable giving and community involvement.
First, the benefits of philanthropy aren’t limited to the good you do for others. Social impact activities are also good for your health. Activities such as volunteering and giving to charities can help you live a longer life, lower your blood pressure, and reduce your stress levels, according to the Cleveland Clinic.
Second, the range of social impact activities is broad, offering plenty of choices for supplementing your gifts to charity with other "doing good" activities. Giving to charities is at the foundation of the many philanthropic activities going on in the lives of Americans; indeed Americans gave nearly $485 billion to charitable organizations in 2021 according to statistics released by Giving USA. Our culture embraces a full range of social impact behaviors including not only giving money to charities, but also volunteering, serving on nonprofit boards of directors, celebrating at community events, recycling and respecting a sustainable environment, marketing a favorite cause, donating items of food and clothing, purchasing products that support a cause, sharing with family and friends in need, and caring about health and wellness.
Third, philanthropic activities are good for your career and business. Community engagement has become a crucial ingredient to attract and retain today's talent. According to McKinsey & Company’s research, employees want to work for a company that embraces purpose. An employer’s community engagement program helps keep productivity high and turnover low.
The team at the community foundation is always happy to discuss your overall philanthropy plan, including establishing a donor-advised fund or other type of vehicle to support your favorite causes, providing information about the organizations you support, helping establish a corporate philanthropy program for your company’s employees, or getting your family involved in giving. We are here for you!
Planning a benevolent exit
If you’re a business owner, at some point you may begin thinking about an exit strategy. Before you start putting out feelers to potential acquirers, you may wish to explore the benefits of contributing an ownership interest in your business to a donor-advised fund or other type of fund at the community foundation.
If you’ve owned your business for several years–or decades–you could be sitting on substantial unrealized capital gains thanks to the increasing value of the business over time. Upon a sale, capital gains tax will be triggered, reducing the proceeds you get to keep. No capital gains tax will apply, however, to the sale of any portion of the business owned by your donor-advised fund. Because of the favorable rules governing the taxation of charitable organizations, your donor-advised fund is likely to net 100 cents on the dollar for the portion it owns. The sale proceeds received by the donor-advised fund are immediately available for you and your family to enjoy by recommending grants from the fund to favorite charities, in whatever amounts and according to whatever schedule aligns with your philanthropic values.
If you own a business and like the idea of potentially giving a portion of the business to a donor-advised fund or other type of fund at the community foundation, please reach out. The team at the community foundation can help you and your advisors evaluate your options and ultimately prepare for the transaction, including reminding your advisors to secure a proper valuation for the charitable deduction at the time a portion of the business interest is contributed to your donor-advised or other type of fund.
Finally, be careful not to start negotiating for your company’s sale before you’ve talked with the community foundation and your advisors. Otherwise, you might get caught in the IRS’s step transaction trap that is a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative asset.
Factors to consider before starting your own charity
Has starting your own charity ever crossed your mind? If it has, you are not alone. Thousands of new charities are started each year by people who are passionate about helping others. The team at the community foundation would be happy to help you evaluate whether starting a charity from scratch is the best way to accomplish your goals, or if another option is worth exploring.
Here are factors we’ll help you consider:
Consider the cause.
Sometimes people start their own charities to meet needs that are actually already being addressed by programs at existing charities that they’re simply not familiar with. The community foundation team would be happy to share information about nonprofit organizations in the community that are addressing the causes you care about. You might be pleasantly surprised to discover a charity that is doing work that is the same or similar to the work you were planning to take on through your new charity. Instead of creating a new charity, your cause might actually be better and more efficiently served if you were to get involved with the existing charitable program.
The state and the Feds.
If you decide that starting a new charity is indeed the right move for you, your next step is to set up your legal entity. It's just like starting a business, and you file your articles of incorporation with the state. The forms are a little different for nonprofit organizations. And, unlike a for-profit business, to start a charitable nonprofit you need to apply to the Internal Revenue Service for an exemption under Section 501(c)(3). This exemption is what allows your organization to be exempt from paying income tax, and also allows someone to donate to your organization and be eligible for deducting that donation on their own tax return.
Spreading the word.
Most people who start new charities are passionate about causes and enjoy talking about the programs they’re running to help people in need. What some may not anticipate, though, is that starting a charity means you have to get out there and share the news about your cause to raise money–not just explain the programs. It's like selling, only you are asking for donations to support your organization's work instead of promoting goods or services like you would in a for-profit business.
Please give us a call anytime you’d like to discuss the causes you care about. We would enjoy the conversation!
The team at the community foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.