Endowment tax is tax of endowments. The city of Cambridge, Massachusetts, has proposed taxing A fund that is made up of gifts and bequests that are subject to a requirement that the principal be maintained intact and invested to create
a source of income for an organization. Donors may set up an endowment to fund a specific interest; and a nonprofit's governing body may set up an endowment. In any case, an endowment requires that the principal remain intact in perpetuity, or for a defined period of time or until sufficient assets have been accumulated to achieve a designated purpose.
Examples: The university has the largest endowment in the higher education community with
Endowment Policy.
Stability is the main reason to have an endowment. Small and new nonprofits often only think about the current fiscal year or the next payroll. It is important to get out of that financial trap as soon as possible. An endowment helps diversify your organization's income and reduces your dependency.
That you have an endowment can be enormously comforting for donors too...the idea that you plan to be around for a long time. You can also offer donors the option of providing a gift that will keep on giving well into the future, and/or the opportunity to fund the needs of the moment such as operating and program funding.
What Are the Disadvantages of an Endowment?
You might be criticized for having an endowment or for having too large of an endowment. Some well-known universities have come under attack recently for growing huge endowments while claiming not to have funds for other uses.
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