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A community foundation typically supports local charities in a specific geographic area.
A community foundation is a public charity that typically focuses on supporting a geographical area, primarily by facilitating and pooling donations used to address community needs and support local nonprofits. Community foundations offer numerous types of grantmaking programs, frequently including donor-advised funds, endowments, scholarships, field-of-interest funds, giving circles and more. Community foundations are funded by donations from individuals, families, businesses and sometimes government grants.
A banker, Frederic Goff, established the first community foundation in Cleveland, Ohio, in 1914. His goal was to create a permanent endowment that would benefit the citizens of greater Cleveland for years to come. More than a century later, The Cleveland Foundation awards grants worth nearly $80 million each year to a variety of projects and programs in that region.
Today, there are about 700 community foundations operating in the United States, focused on addressing community needs in a select city, county, state or region.
Community foundations offer a variety of programs designed to support the needs of the communities they serve, whether local or more broadly defined. Common areas of support include education and human services programs, such as literacy or aid for the homeless.
A community foundation’s grantmaking programs are supported both by donations designated for immediate distribution and income from the foundation’s endowed funds. An endowed fund or endowment is a permanent source of funds that is invested for long-term growth. Each year, some of the funds (typically around 5 percent) are disbursed to fulfill the fund’s purpose; as the invested balance grows, more is available for distribution over time. Typically, such funds include:
Depending on the community foundation and rules governing the specific funds, professional staff, a board of directors, and/or a group of volunteers may be involved in choosing how the funds are distributed to charities or other recipients. The board is ultimately responsible for ensuring that the funds are managed and dispersed in accordance with all laws and policies.
Like community foundations, private foundations are nonprofit organizations that can also be established with a mission to serve the community and provide grants to local charities. However, the two types of organizations are categorized differently by the IRS and have different requirements on how they are governed.
Donations of cash or cash equivalents to public charities like community foundations are deductible up to 60 percent of the donor’s adjusted gross income (AGI).
For direct donations of appreciated assets, including publicly traded stock, closely held stock, real estate and other long-term capital-gains property, donors are eligible to deduct the fair-market value of donated asset deductible up to 30 percent of AGI. In addition, the donor does not need to pay capital gains tax on the appreciation, a potential tax savings of up to 20 percent.
Tax treatment of donations to public charities is generally more favorable than tax treatment of donations to private foundations.
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