Learn how to reduce your income and estate tax, fast.
Get our tips on big-picture strategy and actionable tactics for startup equity, small businesses, crypto, real estate, and more.
JOIN 1,000+ FOUNDERS, EMPLOYEES, AND INVESTORS WHO TRUST VALUR



Get our tips on big-picture strategy and actionable tactics for startup equity, small businesses, crypto, real estate, and more.
JOIN 1,000+ FOUNDERS, EMPLOYEES, AND INVESTORS WHO TRUST VALUR
Nonprofit organizations are big businesses. For example, the Humane Society earns more than $150 million annually in donations and other revenue. Likewise, the Red Cross is a behemoth, raking in more than $3 billion annually. Given those numbers, you may have wondered what it would take to start a public charity.
In this article, we will discuss the basics of public charities: Why you might donate or even start your organization, what it takes to set one up, and how these differ from other non-profit entities, such as private foundations and donor-advised funds.
A public charity is a tax-exempt entity with a public-regarding purpose. People typically use public charities for donations from a broad base of donors, clients, or customers and revenue from their services. Some charitable organizations, such as universities, churches, and research organizations, are automatically classified as public charities. Others need to qualify by satisfying IRS public support requirements (for example, by receiving a certain percentage of their operating funds from the public).
Say there’s a cause you care about, and you’re committed to establishing an organization to help. Why would you specifically start a public charity instead of a private foundation or another charitable entity? There are a few reasons:
Public charities can use their funds in several ways, including granting money to other nonprofit organizations, investing in charitable programs or initiatives, and providing scholarships or grants to individuals. Some of the most common causes are:
There are a few requirements for setting up a public charity.
First, you need to register the entity. State regulators require registration and forms for initial approval. The IRS involves Form 1023 (the application for tax-exempt status) and Form 990. A federal filing fee is also associated with setting up a public foundation.
Second, you’ll need to follow a few corporate formalities. These include a board of directors to oversee operations, bylaws, and a mission statement.
Third, you’ll need to keep up with ongoing filing requirements. First is the charity’s annual federal tax return, which you’ll file with the IRS. In addition, states typically require updates related to the charity’s distribution of funds.
Public charities are different from private foundations in several ways:
Public charities and donor-advised funds are helpful for different purposes. Donor-advised funds are usually a good fit for people who want to give to charitable causes in a financially advantageous way. However, focus on outside fundraising instead of donating their funds.
Both are tax-exempt organizations but have significantly different overhead requirements. For example, public charities must file an annual tax return with the IRS and have a board of directors to oversee their operations, while donor-advised funds do not. Still, public charities can use their funds in broader ways than donor-advised funds.
Setting up a public charity can be an excellent way to rally your community to support causes you care about. They can significantly impact every part of society in today’s world, but that doesn’t mean they are the right fit for every charitable goal. Fundamental differences between these charities and other nonprofit organizations, such as private foundations and donor-advised funds, help determine when each makes sense.
Access our learning blog or contact our team of experts to know more.
We built a platform to give everyone access to the tax and wealth building tools of the ultra-rich like Mark Zuckerberg and Phil Knight. We make it simple and seamless for our customers to take advantage of these hard to access tax advantaged structures so you can build your wealth more efficiently at less than half the cos of competitors. From picking the best strategy to taking care of all the setup and ongoing overhead, we make it easy and have helped create more than $500m in wealth for our customers.