Top Ten Year-End Foundation Tax Tips

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Foundations are required to pay a 2% excise tax on their net investment income, which is generally interest, dividends, and capital gains less investment-related expenses.

The excise tax can be reduced to 1% if a foundation’s percentage of distributions (i.e., adjusted qualifying distributions divided by net value of noncharitable-use assets) is greater than or equal to the average percentage of its distributions over the 5 preceding taxable years plus 1% of net investment income.

Just as individuals and corporations can perform some tax planning during the year, private foundations also can apply the following 10 tax-planning techniques.

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