Understanding the Differences Between Private Foundations and Public Charities

14 July 2025

So, you're thinking about giving back to the world. You’ve made your money, and now you want to make a difference. That’s amazing. But wait—should you start a private foundation or a public charity?

If you’re already scratching your head, you’re not alone. These two types of nonprofit organizations often get confused. They both do good in the world, sure, but how they operate, how they’re funded, and how the IRS views them are very different.

Let’s cut through the noise and break this down in plain English. In this guide, we’ll dive deep into the nitty-gritty differences between private foundations and public charities, and by the end, you’ll be crystal clear about which one fits your mission.

What Are We Even Talking About?

Before we start splitting hairs, let’s define what each thing actually is.

What’s a Private Foundation?

Think of a private foundation like a trust fund set up for philanthropy. It’s usually funded by a single individual, family, or corporation. That money—once it’s in there—stays there, growing over time, while the foundation dishes out grants to causes and nonprofits it vibes with.

Example? Think of the Bill & Melinda Gates Foundation. Mega money. Controlled by the Gates family. Not raising funds from the public, just giving it out.

And What Exactly Is a Public Charity?

A public charity is more like your neighborhood nonprofit that gets its money from tons of different sources—donors, grants, fundraisers, and sometimes even government support.

Ever heard of the Red Cross or your local animal shelter? Yup, they’re public charities. These are the boots-on-the-ground groups doing the day-to-day work, often relying on donations from the general public.

Funding: Where's the Money Coming From?

Alright, here’s where things start to really split.

Private Foundations = Big Donors, Limited Sources

Private foundations typically have one major sugar daddy (sorry, donor). It could be one person, a corporate entity, or a family. Once the initial pile of money goes into the pot, it becomes an investment vehicle. The earnings from investments fund charitable activities and grants.

Regular folks usually don’t donate to these because, well, it’s not really designed for that.

Public Charities = Many Donors, Broader Base

Public charities are kinda like the popular kids. They gather support from everyone—individuals, companies, other nonprofits, and the government. Because they rely on public support, they have to keep proving to the IRS that they’re getting a significant chunk of their funding from the public.

That’s why you’ll see so many of them holding fundraisers, online donation drives, and applying for grants. It’s how they stay legit in the eyes of Uncle Sam.

Control: Who's Running the Show?

If you’re a bit of a control freak, private foundations might be your jam.

Private Foundations Offer Power and Control

With a private foundation, you call the shots. You (and maybe a couple of family members or trusted colleagues) sit on the board. You choose where the money goes. You pick the causes, the grants, the strategy—everything.

It’s your philanthropic empire.

Public Charities Run on Collaboration

Public charities, on the other hand, are designed to be more democratic. They often have larger boards with community representation. They involve stakeholders from different backgrounds. The idea is to reflect a more public-serving structure—not just a single person’s vision.

So if you want to be the boss, a foundation is better. But if you want community input and broader collaboration, a public charity might be for you.

Tax Treatment: The Numbers Don’t Lie

Let’s talk taxes (not sexy, but super important).

Tax Perks of Private Foundations

Private foundations do come with tax advantages, but they’re not as juicy as what public charities get.

- Deductibility Limitations: Donors to private foundations can only deduct up to 30% of their adjusted gross income (AGI) for cash donations.
- Excise Taxes: These foundations often pay a small excise tax on net investment income (usually around 1-2%).
- Required Distributions: Private foundations are required by law to give away at least 5% of their assets annually. If they don’t, the IRS gets cranky.

Public Charities Are the IRS's Favorites

Public charities enjoy better tax perks:

- Higher Deductibility Limits: Donors can deduct up to 60% of their AGI when giving cash.
- No Excise Tax: They don’t have to worry about pesky investment taxes.
- Less Red Tape: They’re held accountable, yes, but they aren’t forced to give away a certain percentage every year.

If tax savings are your top priority, public charities win this round.

Grantmaking vs. Direct Service: What’s the Mission?

This one is all about your style of giving.

Private Foundations = The Grant Kings

Foundations love sitting at the top of the hill and raining money down on nonprofits that are doing the work. They’re the funders.

They’re not usually the ones handing out food, building schools, or rescuing puppies. They fund the people who do that.

Public Charities = In the Trenches

Public charities are typically the frontline workers. They’re running programs, providing services, and actively making change on the ground.

So ask yourself—do you want to do the work, or fund others who do?

Reporting and Regulations: Who's Watching?

Spoiler alert: the IRS has its eye on both, but one gets more heat.

Private Foundations: Under the Microscope

Because private foundations are controlled by a small group and aren’t publicly supported, the IRS keeps them on a tighter leash.

They have to file a more detailed Form 990-PF each year, which is a beast compared to the standard 990 that public charities file.

They also have to avoid self-dealing like the plague. That means no funky business like hiring your cousin to “consult” or renting your beach house to host a board meeting.

Public Charities Have More Wiggle Room

Public charities still report annually via the 990, but the requirements are generally lighter unless they’re rolling in millions. And while they can’t be shady, they don’t have the strict self-dealing rules foundations do.

Longevity: Short-Term Act or Enduring Legacy?

This part is all about the long game.

Private Foundations Can Live Forever

Set it up right, and your foundation can outlive you by centuries. It can carry your name, legacy, and values long after you’re gone. That’s part of the reason billionaires love them—they’re basically philanthropic immortality.

Public Charities Are Only as Strong as Their Support

Public charities can absolutely endure long-term, but they depend on continued public support and strong leadership. Without that, they can fold faster than a bad poker hand.

Pros and Cons: Let’s Stack ‘Em Up

Here’s the TL;DR version (but don’t actually TL;DR this article—there’s gold above!).

| Factor | Private Foundation | Public Charity |
|------------------------|--------------------|-----------------------|
| Funding | One/few sources | Broad/public support |
| Control | High (you!) | Spread out/community |
| Tax Deductibility | Lower | Higher |
| Grantmaking | Main focus | Can grant or operate |
| Scrutiny | Intense | Moderate |
| Setup Complexity | More complex | Easier |
| Longevity | Built to last | Depends on support |

So… Which One Should You Choose?

Here’s the raw truth: neither is better or worse. It all depends on your goals, your values, and how hands-on (or hands-off) you want to be.

- Want full control, a lasting legacy, and the power to fund what matters to you? Go for a private foundation.
- Prefer community impact, simpler rules, and the ability to rally public support? A public charity is your best bet.

Still not sure? Talk to a nonprofit attorney or a CPA who specializes in this stuff. Better yet, grab coffee with both. Your vision deserves to launch the right way.

Final Thoughts: Philanthropy Shouldn’t Be Confusing

At the end of the day, giving back is one of the most powerful ways to make your mark on the world. Whether you're building your own philanthropic empire or joining forces with the public to make change, what matters most is your mission.

Don’t get stuck in analysis paralysis. Get clear on your goals, understand the rules of the game, and then go do something amazing with your wealth, time, and heart.