Is a private foundation the right structure?
Start here, because it is easy to over-build. If you want to run programs and raise money from the public, a public charity is simpler and comes with lighter rules. A private foundation fits when one source funds it and its main activity is grantmaking, and when the funder wants lasting control. If you mostly want to give money away, a donor-advised fund at a community foundation does that with almost none of the overhead.
What is the same as any nonprofit
The formation steps are the standard ones: incorporate in your state, get an EIN, adopt bylaws, and apply to the IRS. Our how-to-start guide and the state guides cover that path in full.
Where a foundation differs
Two big differences at setup. First, foundations file the full Form 1023, not the short 1023-EZ. Second, the IRS treats you as a private foundation by default unless you can show broad public support, so you do not elect it so much as fall into it.
The rules that make a foundation a foundation
- The 5% payout. Each year you must distribute roughly 5% of your assets for charitable purposes.
- Form 990-PF. Foundations file this specialized annual return, which is more detailed than the standard 990.
- Excise tax. A small tax (about 1.39%) applies to net investment income.
- Self-dealing rules. Transactions between the foundation and insiders are tightly restricted.
- Grants to individuals. Allowed, but they require advance IRS-approved procedures.
The simpler alternative
If the goal is simply to give, a donor-advised fund lets you recommend grants without forming or running an entity. Many families start there and only create a foundation when scale or control makes the overhead worth it.