How to start a foundation in 2026

Is there a license? None of the five states we read — Texas, Florida, New York, California and Wisconsin — licenses a grantmaking foundation as such. What you form is a corporation or a trust: "A nonprofit organization may be created as a corporation, a trust, or an unincorporated association. Any of these entities may qualify for exemption." (the IRS, life cycle of a private foundation). The corporation's filing fee from the statute: "for filing a certificate of formation, $25;" in Texas (Tex. Bus. Orgs. Code §4.153), "Filing articles of incorporation not providing for shares: Thirty dollars ($30)." plus "Twenty dollars ($20)" for the statement of information in California (Cal. Gov. Code §12186), "Articles of incorporation: $35." plus "Designation of and acceptance by registered agent: $35." in Florida (Fla. Stat. §617.0122), "seventy-five dollars" in New York (N.Y. N-PCL §104-A) — $75 — and "Articles of incorporation, $35." in Wisconsin (Wis. Stat. §181.0122, as archived — the state's own site refuses readers). A charitable trust files nothing at the Secretary of State — "A trust may be created for charitable purposes." (Fla. Stat. §736.0405) — and needs the attorney who drafts it, with the attorney general supervising it in New York and California (below). The board: "may not have fewer than three directors" in Texas (Tex. Bus. Orgs. Code §22.204), "three or more" in Florida (Fla. Stat. §617.0803), "not less than three" in New York (N.Y. N-PCL §702) and "one or more" in California (Cal. Corp. Code §5151); Wisconsin's own site does not open to a reader, so check its rule with the attorney who forms the foundation. Either document must carry the private-foundation clauses: "As a private foundation you are not tax exempt unless your organizing document contains specific provisions required by section 508(e). These specific provisions require that you operate to avoid liability for excise taxes under sections 4941(d) (acts of self-dealing), 4942 (undistributed income), 4943(c) (excess business holdings), 4944 (jeopardizing investments), and 4945(d) (taxable expenditures)." (IRS, Form 1023-EZ instructions). Then the EIN: "Use this tool to get an EIN directly from the IRS in minutes for free." (IRS) — "Every foundation must have an employer identification number, even if it will not have employees." (the IRS, above).

The IRS: the full form, and why the short one is closed to you. The user fee is "$600" for the full Form 1023 and "$275" for the Form 1023-EZ (Revenue Procedure 2026-5, Appendix A), but the EZ's own test shuts the door on a funded foundation — "(a) The organization has projected annual gross receipts of $50,000 or less in the current taxable year and the next two years; (b) The organization had annual gross receipts of $50,000 or less in each of the past three years for which the organization was in existence; and (c) The organization has total assets the fair market value of which does not exceed $250,000." (the same procedure) — and "Private operating foundations and certain other organizations cannot file a Form 1023-EZ." (the IRS, applying to the IRS). A founding gift is receipts far above $50,000 in year one, so the full form it is; the AI answer's "Form 1023-EZ if eligible" is not a choice you have. If scholarships are the point, the same application carries the request: "If you're a 'private foundation' as described in Part VII, you must obtain advance approval of your grant-making procedures. You can use Schedule H—Section II, to request advance approval as part of this application process." (IRS, Form 1023 instructions).

The private-foundation rules, in the statute's words. The definition is the one-third test above (26 U.S.C. §509). The tax on the investments: "a tax equal to 1.39 percent of the net investment income of such foundation for the taxable year." (§4940) — "For tax years beginning after Dec. 20, 2019, the excise tax is 1.39% of net investment income, and there is no reduced 1 percent tax rate." (the IRS); on the plan's 4 to 6 percent return that is $139 a year on $250,000 and $417 on $500,000, our arithmetic. The payout: "the minimum investment return for any private foundation for any taxable year is 5 percent of the excess of— (A) the aggregate fair market value of all assets of the foundation other than those which are used (or held for use) directly in carrying out the foundation's exempt purpose, over (B) the acquisition indebtedness with respect to such assets" (§4942(e)), due by the end of the following year, with "a tax equal to 30 percent of the amount of such income remaining undistributed" and then "a tax equal to 100 percent of the amount remaining undistributed" (§4942(a) and (b)) — "An additional 100 percent tax is triggered if the foundation fails to make up the deficient distribution within 90 days of receiving notification from the IRS" (the IRS, failure to distribute income). The money and the family: "The rate of tax shall be equal to 10 percent of the amount involved with respect to the act of self-dealing", "a tax equal to 5 percent of the amount involved" on a manager who knowingly agreed, and "a tax equal to 200 percent of the amount involved" if it is not corrected (§4941; the IRS, self-dealing); the one exception is pay for work — "the payment of compensation (and the payment or reimbursement of expenses) by a private foundation to a disqualified person for personal services which are reasonable and necessary to carrying out the exempt purpose of the private foundation shall not be an act of self-dealing if the compensation (or payment or reimbursement) is not excessive;" (§4941(d)(2)(E)). Who counts: "a substantial contributor to the foundation", a 20 percent owner, and "a member of the family" — "the family of any individual shall include only his spouse, ancestors, children, grandchildren, great grandchildren, and the spouses of children, grandchildren, and great grandchildren." (§4946; the IRS, disqualified persons). The founder's company: "the combined holdings of a private foundation and all of its disqualified persons are limited to 20 percent of the voting stock in a business enterprise that is a corporation" with "a tax equal to 10 percent of the value of such holdings" (the IRS, excess business holdings; §4943); a reckless investment, "a tax equal to 10 percent of the amount so invested for each year" (§4944; the IRS, jeopardizing investments). What the money may not do: lobbying, elections, and "a grant to an individual for travel, study, or other similar purposes by such individual, unless such grant satisfies the requirements of subsection (g)," at "a tax equal to 20 percent of the amount thereof." (§4945; the IRS, taxable expenditures).

The scholarship foundation — the second-biggest reader. "How to start a scholarship foundation" is searched as often as the head phrase, and the rule is section 4945(g): "Subsection (d)(3) shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the Secretary, if it is demonstrated to the satisfaction of the Secretary that— (1) the grant constitutes a scholarship or fellowship grant … and is to be used for study at an educational organization described in section 170(b)(1)(A)(ii)," (§4945(g), above); "The grant is awarded on an objective and nondiscriminatory basis under a procedure approved in advance by the Service" (the IRS, grants to individuals). The approval is Schedule H of the Form 1023 (above). And never for the family: "you may not set up a scholarship program to pay for the education expenses of a designated individual, such as a contributor's family member. See Rev. Rul. 67-367" (the Form 1023-EZ instructions, above). The other route, which every memorial-scholarship family here took, is a fund at a community foundation or a hospital foundation — a public charity, with no 990-PF and no section 4945 layer: a Wisconsin community foundation prints "No administrative fees are assessed until the fund balance reaches the minimum endowment level of $10,000 ($15,000 minimum for a scholarship endowment)." (Community Foundation for the Fox Valley Region).

The return, and who gets to read it. "All private foundations, whether they have taxable income for, or activity during. the year or not … are required to file an annual return on Form 990-PF" (the IRS, the annual return) — no postcard, whatever the size — and "If you are filing a 2025 Form 990-PF, you are required to file electronically." (IRS, Form 990-PF instructions); the supplementary part that prints your grant program, contact and application procedure is for "All foundations with at least $5,000 in assets per books at some time during tax year" (the same instructions). Miss it three times and "it will automatically lose its tax-exempt status and will become a taxable private foundation." (the same). It is public — "Unlike most exempt organizations, however, identities of contributors to a private foundation are not exempt from disclosure." (the IRS, public disclosure for private foundations) — so post it, as the George Gund Foundation does: "The Gund Foundation's 990-PF form is now available for viewing and downloading." (the George Gund Foundation) — and claim the Candid profile grant seekers check: "Organizations can earn Candid Seals of Transparency and tell their full story on their profile" (Candid); "over 99,000 of them have earned their Candid Seal of Transparency." (Candid, key facts, above). The founders' deduction is the other inversion the AI answer skips: "30 percent of the taxpayer's contribution base" for cash and "20 percent" for appreciated securities to a private foundation, against "60 percent" to a public charity (§170(b)(1); "the 30% limit applies to amounts you spend on behalf of a private nonoperating foundation." — IRS Publication 526); Fidelity Charitable's comparison: "Charitable deductions for contributions to foundations are limited to 30 percent of adjusted gross income for cash and 20 percent of adjusted gross income for long-term publicly traded appreciated securities. For contributions to a donor-advised fund, those limits are 60 percent and 30 percent, respectively." and "For private foundations, non-publicly traded contributions, such as privately held stock or real estate, may be deductible only at cost basis rather than at fair market value." (Fidelity Charitable, as archived October 8, 2026 — the live site is blocked from here). Confirm the year's limits and the carry-forward with your accountant.

State registration — the AI answer has it backwards for two states. The Overview says register "if you plan to solicit". A family foundation does not solicit, so Florida's and Wisconsin's registration statutes, which bind solicitors — "'Solicitation' means a request, directly or indirectly, for money, property, financial assistance, or any other thing of value" (Fla. Stat. §496.404; the exemptions in §496.406); "no charitable organization may solicit in this state or have contributions solicited in this state on its behalf unless it is registered with the department" (Wis. Stat. §202.12, as archived) — and Texas, which lists no general charity registration at all (Texas Attorney General, charitable trusts; its public-inspection rule exempts "corporations that do not intend to solicit and do not actually receive contributions in excess of $10,000 during a fiscal year from sources other than their members" — Texas Secretary of State), mostly leave it alone. New York and California are the inversion: they register every holder of charitable assets, soliciting or not. New York's trustee is "any individual, group of individuals, executor, trustee, corporation or other legal entity holding and administering property for charitable purposes" and "Every trustee shall file with the attorney general, within six months after any property held by him or her or any income therefrom is required to be applied to charitable purposes, a copy of the instrument", at a yearly fee by net worth — "One hundred dollars if such net worth is two hundred and fifty thousand dollars or more but less than one million dollars" (N.Y. EPTL §8-1.4); the "twenty-five dollars" in Exec. Law §172 is the separate fee for organizations that solicit. California: "Every charitable organization, including trustees, doing business or holding property in California is required to annually renew its registration with the Attorney General's Registry of Charities and Fundraisers. Registrants must report annually by filing Form RRF-1 with the applicable renewal fee along with either IRS Form 990 (-EZ/PF) or Form CT-TR-1." — "Between $250,001 and $1 million" on its fee table, "$100" (California Attorney General, renewals), registered "within 30 days after the corporation … or trustee initially receives property" (Cal. Gov. Code §12585); the exemptions are religious, educational and hospital organizations, not foundations (Cal. Gov. Code §12583). The IRS's own line is that the states take "a copy of IRS Form 990-PF" with the report (the IRS, state registration). Check your own state's rule. Sales tax does not arise — a grantmaker sells nothing — and the purchase exemptions, the fundraising registrations and the Form 1023 processing times are in our guide to starting a nonprofit, the operating charity's page.

Insurance, and the day you hire. No page read in the five states mandates a foundation's insurance; the board asks for it: "For nonprofit organizations, the monthly average premium for directors and officers (D&O) insurance is $67 per month, or $801 annually." (Insureon, nonprofit insurance costs, May 8, 2025) — the plan allows a planning $1,500 a year for higher limits on a larger endowment. Workers' compensation only once there is an employee: "an employer may elect to obtain workers' compensation insurance coverage" in Texas (Tex. Labor Code §406.002); "All private employments in which four or more employees are employed by the same employer" in Florida (Fla. Stat. §440.02); "Every employer except the state shall secure the payment of compensation" in California (Cal. Labor Code §3700); New York's statute lists the covered employments and the sibling guide's reading is nearly all employers (N.Y. Workers' Compensation Law §3); Wisconsin's own site refuses readers, so check its rule.

The money to start — and the "$1 million" the AI answer repeats. From the pages that open on October 26, 2026, the Madison sample's paperwork layer: the Wisconsin articles at $35; the EIN at $0; the full Form 1023 at $600; directors-and-officers cover at Insureon's $67 a month, $801 for the year; the CPA's 990-PF at "$2,500" — "For Nonprofits who: Are private foundations, regardless of financial status" (Jitasa, bundled with its bookkeeping; the one list price found); investment management at $0 — "Pay no advisory fee and no commissions." with "as little as $5,000" (Schwab Intelligent Portfolios), or Vanguard's Personal Advisor at "Approximately $30-$31 per $10,000 invested" a year with a $50,000 minimum (Vanguard): $3,936, our arithmetic, before the gift. With a peer network — "$870 for Signature members" at Exponent Philanthropy, 2026 dues — and a built website at a planning $2,500, $7,306. The plan page's wider $254,314–$517,251 adds the attorney's setup at a planning $2,500 to $10,000, the registration, the policies, two months of working capital and the founding gift itself, $250,000 to $500,000. Now the floor everyone quotes. The law sets none: "There is no legal minimum amount required to start a private foundation." (San Diego Foundation, June 12, 2026). Who says a million: a wealth manager — "There's no legal minimum to start a private foundation, but advisors generally recommend at least $1 million for the structure to be cost-effective and sustainable." (Creative Planning, April 13, 2026) — and Fidelity's learning center, "To justify the expenses involved, most new private foundations are funded with initial endowments of at least $1 million." (Fidelity, as archived April 20, 2026 — the live page refuses readers). No page counts the advisors, and Foundation Source — an administrator of private foundations, which says it supports more than 5,600 of them — says the reverse: "Although Foundation Source has lowered the cost of starting and managing a private foundation, making it practical to establish a private foundation with less than $1 million in initial funding, public charities often have lower start-up costs and no minimal revenue requirements." (Foundation Source, above); its own fee is printed on none of its pages that open — a wealth manager's flyer about it prints "a one-time setup fee of $5,500 (includes IRS and state filings)" and "Base Fee: $7,500 +0.29% of assets up to $3 million" (a Bernstein flyer for Foundation Source, undated). The Council on Foundations' worked example is the honest arithmetic: "$1,000,000 x .055 = $55,000 Assets x 5.5 percent = total annual charitable budget (grants + expenses)" and "Without paid staff, your administrative costs will reflect only your legal and accounting fees (estimated at $5,000), which in this case is 9 percent of your annual charitable budget." (Council on Foundations, as archived June 10, 2026 — its site refuses readers). The alternative for the family below that line: "you can establish a donor-advised fund for significantly less than a private foundation" (Fidelity Charitable, above), with "no minimum initial contribution" and an administrative fee of "0.60% or $100, whichever is greater" on the first $500,000 (Fidelity Charitable, what it costs, as archived October 15, 2026).

In the UK: the regulator is the Charity Commission for England and Wales. GOV.UK's rule, in our words: a charity usually needs at least three trustees, and it must register with the Commission once its yearly income is over £5,000, or from the start if it is set up as a charitable incorporated organization (GOV.UK, setting up a charity); below £5,000 it need not register but "you can still apply to HM Revenue and Customs for recognition as a charity to get charity tax breaks and claim gift aid" (GOV.UK, CC21b); the structures are a CIO, a charitable company, an unincorporated association or a trust (GOV.UK, CC22a); "You can claim back 25p every time an individual donates £1 to your charity" (GOV.UK, Gift Aid). The word itself is controlled: "52. Foundation — To use this word in your proposed name, the company should normally be limited by guarantee. It should have a pool of money, or a regular source of income to promote its objects." (GOV.UK, sensitive words). The inversion: no 5 percent payout rule and no tax on investment income — a grantmaking charity applies its income to its objects. In Australia: the ACNC registers charities and passes the tax-concession application to the ATO, which endorses deductible gift recipients (ACNC, why register; ACNC, DGR fact sheet). The private foundation's equivalent is the private ancillary fund — "Ancillary funds are now known as giving funds. This is a name change only." and "Ancillary funds are a specific type of trust regulated by the Australian Taxation Office (ATO), and the ATO has specific requirements for private ancillary funds and public ancillary funds." (ACNC, ancillary funds) — with the same payout idea and an absolute floor: "During each financial year, a private AF must distribute at least 5% of the market value of the fund's net assets as valued at the end of the previous financial year." and "If a fund's expenses are paid out of the fund's assets or income, its minimum distribution is $11,000, or 5%, whichever is greater." (ATO, ancillary fund return instructions). Check your own regulator's rules.