Giving your royalties to a charity or scholarship

December 23rd, 2019 → 10:14 am @

Can I setup up a family run scholarship foundation? I’d like to set up a scholarship and have it funded with my royalties.

How do I link up with a college so my royalties are safe from law suits and my royalties support my family and provide scholarship monies for deserving students?

-A Generous Author


Dear Generous Author,

There are a few options to use your income from royalties to award scholarships:

  1. Donate money from your royalties (after tax) or other sources of income to a college and designate it for their scholarship fund. The donation will be tax deductible in the year you donate it.

  2. Open a Donor Advised Fund (DAF) at Vanguard, Charles Schwab, Fidelity etc. and fund it with your income from royalties (after tax). The donation will be tax deductible in the year you donate it, but can be sent to colleges or other charities over a period of years.

    This is a nice option if you expect large royalties in the early years but want to donate to colleges over many years. You have a lot of control over the timing of the timing and amounts by using a DAF.

  3. If you have a very large amount of cash, you could consider setting up a private foundation.

    Private foundations are established by a wealthy individual or family  who typically provides a large lump sum. Then the investment earnings from that lump sum are distributed each year to charitable causes – college scholarships in your case. Starting a private foundation involves setting up a nonprofit corporation,  forming a board, applying for 501c3 tax exempt status and filing annual reports with the IRS and your state.

    I recommend you seek the advice of several CPAs and nonprofit attorneys to see if this is the best option for you. Many wealthy donors find that a Donor Advised Fund (#2) gives them the flexibility and control of the funds that they desire without setting up a private foundation.

Warning: I would advise you to not donate your book rights to a charity. Keep the rights to your book, but feel free to donate the royalties (or copies of the book) as you see fit.

Carol Topp, CPA


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