Both community foundations and private foundations are tax-exempt charitable organizations that can be effective giving options for philanthropists.
So which is right for you?
Understanding their differences will help you determine which vehicle is best for your charitable giving needs and tax deductions.
Definition: Community Foundation
According to the Council on Foundations, community foundations are grantmaking public charities that are dedicated to improving the lives of people in a defined local geographic area. They bring together the financial resources of individuals, families and businesses to support effective nonprofits in their communities.
More than 750 community foundations nationwide play a key role identifying and solving community problems. They are governed by a place-based Board of charitably-minded leaders who care deeply about their community.
Community foundations vary widely in asset size, ranging from less than $100,000 to more than $1.7 billion. The San Diego Foundation, for example, serves the San Diego County region with more than $1.1 billion in assets from over 2,200 endowed and non-endowed charitable funds. The majority of grants made are locally, however, grants can also be made to any national and international nonprofit in good standing.
Definition: Private Foundation
According to the Council on Foundations, private foundation is the umbrella term that includes corporate, independent, family and operating foundations. These independent legal entities make grants from their charitable endowments, which consist of funds coming from one or a small list of sources — an individual, a family or a corporation.
The fund is managed by the foundation’s own appointed trustees or directors.
Like community foundations and other public charities, private foundations are classified as a tax-exempt 501(c)(3) organization by the IRS. Unlike community foundations, however, private foundations do not raise funds or seek financial support from the public.
Key Differences: Community Foundations & Private Foundations
In contrast to community foundations, private foundations usually have a single major source of funding (an individual, family or corporation).
Another key difference is that community foundations offer donor-advised funds, which provide philanthropists the benefits of a private foundation without the complexity, administrative burden or added expenses.
Donor-advised funds provide more favorable tax deductions for charitable gifts of cash, stock and real estate:
| Type of Charitable Gift | Donor-Advised Fund Tax Deduction | Private Foundation Tax Deduction |
| Cash | Up to 60% of AGI | Up to 30% of AGI |
| Appreciated Stock | Up to 30% of AGI | Up to 20% of AGI |
| Real Estate | Up to 30% of AGI | Up to 20% of AGI |
Donor-advised funds also require no minimum distribution requirements, whereas private foundations are required to distribute at least 5 percent of its net asset value each year.
Among other differences, another key differentiator is community foundations provide a staff of community experts and grantmaking best practices. These experts have deep roots in the community and can help philanthropists identify emerging needs and maximize impact. They act as your partners in philanthropy to achieve your charitable goals.
With a private foundation, however, trustees must research and evaluate their own grants.
Learn More
Since 1975, The San Diego Foundation has helped passionate, socially-minded citizens find ways to create positive impacts in communities across the San Diego region.
Interested in learning how donor-advised funds could be an alternative to a private foundation for you?
Learn more about how donor-advised funds are our Private Foundation Solution, and join thousands of San Diegans who partner with us to make their giving joyful, simple and more effective.
