Charitable LLCs, or philanthropy LLCs, have emerged as a remarkable tax-saving strategy that allows high-profile individuals and businesses to channel their wealth toward charitable endeavors while reaping significant tax benefits. Two prominent figures who have utilized this innovative approach are Mark Zuckerberg, co-founder of Facebook, and Jack Dorsey, co-founder of Twitter. In this blog, we’ll explore the concept of Charitable LLCs and how Zuckerberg and Dorsey leveraged them to reduce taxes and make a profound impact on the world.

Understanding Charitable LLCs:

A Charitable LLC is a hybrid entity that combines the structure of a limited liability company with a philanthropic purpose. It allows founders and high net worth individuals to contribute assets to the LLC, which then invests in charitable causes. Unlike traditional LLCs, Charitable LLCs qualify for tax-exempt status under Internal Revenue Code Section 501(c)(3), resulting in significant tax advantages.

Mark Zuckerberg’s Charitable LLC – The Chan Zuckerberg Initiative:

In 2015, Mark Zuckerberg and his wife, Priscilla Chan, established the Chan Zuckerberg Initiative (CZI), a Charitable LLC aimed at promoting education, advancing science, and curing diseases. By transferring 99% of their Facebook shares, valued at billions of dollars, to CZI, the couple received significant tax deductions. This move exemplifies how Charitable LLCs enable ultra-high-net-worth individuals to make substantial contributions to philanthropic causes while reducing their tax burden.

Tax Benefits of Charitable LLCs:

Immediate Charitable Deductions: When contributing assets to a Charitable LLC, founders can claim immediate charitable deductions on their personal income tax returns. This deduction is calculated based on the fair market value of the assets contributed, resulting in considerable tax savings.

Capital Gains Tax Avoidance: By donating appreciated assets, such as stocks, to a Charitable LLC, founders can avoid capital gains tax on the appreciation. This provides a powerful incentive for donors to contribute assets that have significantly appreciated in value over time.

Jack Dorsey’s Charitable LLC – Start Small Foundation:

In 2016, Jack Dorsey established Start Small Foundation, a Charitable LLC designed to address global challenges, with an initial contribution of approximately 19 million shares of Square Inc., worth over $200 million. Through this strategic move, Dorsey not only demonstrated his commitment to philanthropy but also unlocked significant tax advantages.

Elevating Impact Through a Donor-Advised Fund:

Charitable LLCs often work in conjunction with donor-advised funds (DAFs), which act as an intermediary between the donor and the chosen charitable organizations. By utilizing DAFs, founders like Zuckerberg and Dorsey can benefit from additional tax deductions while retaining control over the funds’ investment and distribution.

Strategic Giving and Long-Term Impact:

Charitable LLCs offer flexibility and control over the allocation of funds, allowing founders to make strategic philanthropic investments. By operating as an LLC, these entities can engage in mission-related investments (MRIs) and program-related investments (PRIs), enabling their resources to be deployed in ways that align with their charitable mission.

Transparency and Accountability:

Though Charitable LLCs provide founders with more control over their philanthropic endeavors, there is no requirement for public reporting and transparency of CLLC assets. This protects the donor of the assets from public disclosure as to how the assets are used currently and 90 years from now. The implementation of a “Donor Advised Fund” (DAF) gives the donor/member manager of the CLLC the flexibility of designating a 501(c) (3) charity at a late date, up to 90 years from the date of the donation.