Take Back Control
of Your Tax Money
by Tina Triano, Attorney

Federal government bails AIG with $85 billion…federal government bails banks, including Wells Fargo, Bank of America, JP Morgan Chase, Citigroup, to the tune of $198,888,248,000 (yes, that’s billion!)…federal government bails FannieMae and FreddieMac for an estimated $200 billion…and the list goes on.

If you don’t like what the government is doing with your tax money and you make over $150,000 taxable income per year, you can take control. Consider creating your own private foundation where you are in complete control to decide how your tax money is spent. A foundation is a tax exempt organization that you control and contribute taxable income for a tax deduction on your personal tax return. For example, if you make $150,000 taxable income, then your federal tax should be $35,720 single or $30,234 married filing jointly.

If you had a nonoperating foundation, you could contribute up to 30% of your taxable income to your foundation, reducing your taxable income to $105,000 and your federal tax to $18,625 single for a first year savings of $17,095 or $23,532 married filing jointly for a first year savings of $6,702.

If you had an operating foundation, you could contribute up to 50% of your taxable income to your foundation, reducing your taxable income to $75,000 and your federal tax to $11,125 for a first year savings of $24,595 or $19,794 married filing jointly for a first year savings of $10,440.

As you may have noticed, there are two categories of foundations: operating and nonoperating. Most tax professionals are only familiar with nonoperating foundations and many claim that they are cumbersome to manage, but this is simply not the case. They are only as complicated as you choose to make them. The major difference between an operating foundation and a nonoperating foundation is that an operating foundation conducts its own charitable purpose.

The minimum annual mandatory distribution including expenses paid by the foundation for normal operations, travel and other events, from a nonoperating foundation is the lesser of 5% of the value of the foundation assets annually or 85% of the foundation’s annual income. Most nonoperating foundations merely hold money in investment accounts. Using the above examples, if you contribute $45,000 to your foundation, your nonoperating foundation would be required to distribute a minimum of $2,250 (5% of the valued assets) or, if the foundation made 4% on investments, only $1,530 minimum distribution.

Operating foundations are not required to make these charitable distributions because they are the charity that can receive distributions from nonoperating foundations. There are more benefits to taxpayers who have operating foundations. They are allowed to contribute up to 50% of their taxable income to their foundations as a personal tax deduction. You have the opportunity to tap nonoperating foundations for grants and gifts as part of their mandatory giving.

For both operating and nonoperating foundations, you control where all of the money and assets of your foundation are invested. You may also receive income from your foundation for managing your foundation at any time.

I am merely scratching the service of charitable purposes that include anything from scheduled child play dates, education programs or materials, lecturing, writing, support of amateur sports competition, low income rental housing, support groups, horticulture, and hundreds of others. Many of you may already be spending hard earned money on a hobby or business related activities that qualify as a charitable purpose that you were unaware could reduce your income tax. If you are already spending the money, you might consider taking advantage of reduced taxes.

Not everyone is a candidate for a private foundation. The best candidates are those taxpayers whose taxable income exceeds $150,000 per year and would like to reduce their taxes while supporting or conducting a charitable purpose. One on one consultation with a foundation attorney and review of your past few years of tax returns and list of assets is highly recommended.

~Tina Triano Esq. is a California licensed attorney with over 15 years of trust and tax planning experience. Tina is available for group lectures and private consultations.