Unlocking Tax Savings: The Power of a Family Foundation

Today, I’m going to explain—in the simplest way possible—why a Family Foundation is one of the most effective tools for saving on taxes.

First off, for those who aren’t sure what a Family Foundation is, I will use one sentence to describe it: It’s not a company, not a trust, not a fund. it’s a charity. Once you donate money into it, the money does not belong to you anymore. The reason why Family Foundation is not a company is because Family Foundations doesn't have any business activities. It is not a trust because trust is setup to effectively and safely pass on assets to the next generation in the future, which is different from the Family Foundation. Family Foundation is a charity.

Once you understand that a Family Foundation is really a charity, the next question might be: “Why would I go through the trouble of setting up a charity?” Well, I once came across a TikTok video that was a bit exaggerated but had some truth to it. The guy was like, “I’m going to reveal the secret behind rich people’s so-called charity work.” He pointed out how you always hear about some rich people donating a million, or a billionaire giving $2 million, or an entrepreneur donating $5 million. It seems like they’re doing it for the public good, but in reality, most of that money goes into their own Family Foundations, so we should not be fooled by rich people's charity deeds. And honestly, I thought, the video had a point. Now, I’m not saying their donations are fake, but I do want to explain why so many wealthy people in the U.S. choose to set up Family Foundations and funnel their money into them.

So today, I’m going to walk you through the benefits of setting up a Family Foundation. It all boils down to two words: tax savings. In my opinion, this is the most effective and straightforward way to save on taxes—period.

First, Income Tax Deduction: donations to your family foundations are tax deductible. For example, if you make $1 million in income and put $300,000 into a Family Foundation, your taxable income immediately drops to $700,000. At a 50% tax rate, that’s $150,000 in savings right there. Notice how careful I am with this example—I didn’t say $500,000 or the whole $1 million, but 300,000. Couldn’t you save even more? Not really. —if you put all $1 million in, your taxable income would be zero, and the IRS would get nothing! So, the rule is you can only put in up to 30% of your income into a Family Foundation.

Another way to save is on capital gains tax. Here’s how it works: you can put stocks into your Family Foundation. Let’s say you have $200,000 worth of stock that you originally bought for $100,000. That means you’ve got $100,000 in capital gains. If you sell it yourself, you’ll pay up to 20% in capital gains tax. But if you sell it through the foundation, the tax rate is just 1.39%. Again, I’m using a careful example here with $200,000 in stock because for stocks, you can only put in up to 20% of your income. But here’s a key detail—why can you treat the stock you bought at $100,000 for its current market value of $200,000 when you put it into the foundation? That’s because if the stock is publicly traded and you’ve held it for more than a year, you can use the market value, not the purchase price. If that wasn’t clear, feel free to rewind and listen to this part again!

Finally, there’s the estate tax savings. This one is simple—when you put assets into your foundation, they’re no longer part of your estate. So, when calculating estate taxes, the foundation’s assets aren’t included. You only need to worry about estate taxes if your assets exceed $13.61 million for an individual, or $27 million for a couple. I’m not too worried about that, yet. For those who worry about estate tax, Family Foundation should be one of your estate planning saving tool. And for those who don’t have to worry about estate taxes just yet, I wish you even greater success.

In a word, Family Foundation is a charity. It is a fast, precise, and powerful way to save on taxes—both during your lifetime and after you're gone. Family foundations can be a powerful tool for charitable giving and tax planning when used appropriately!"

This post is to be used for informational purpose only and does not constitute legal, business, or tax advice. Each person should consult his or her own accountant, attorney, or business advisor with respect to matters referenced in this post. Zhou Agency assumes no liability for actions taken in reliance upon the information contained herein.