Let’s get personal about Charitable Giving with Donor Advised Funds

Let’s get personal about Charitable Giving with Donor Advised Funds

Many of us have charities near and dear to our hearts that we want to support. There are so many benefits to supporting the organizations you care about, but what if you could also obtain an immediate tax deduction?

Donor Advised Fund

A donor advised fund (DAF) is one of the easiest and most tax-advantageous ways to give to charities.  A donor advised fund is like a charitable investment account for the sole purpose of supporting charitable organizations you care about.  How great is that?

When you contribute cash, securities, or other assets to a donor advised fund, you are able to claim an immediate tax deduction.  Some of the most generally accepted assets to a DAF are:

  • Cash or cash equivalents
  • Publicly traded securities
  • Mutual fund shares
  • Restricted stock
  • Bitcoin and other cryptocurrencies
  • Private equity and hedge fund interests
  • Certain complex assets (like art)

Then those funds can be invested for tax-free growth, while allowing you to support charities on your timetable especially if you are having a higher income tax year.

In addition, you can claim a tax deduction in the year you contribute assets to the donor-advised fund rather than in the year the contribution goes to the charity.

Maximize potential tax benefits

As soon as you make a charitable contribution, you are eligible to receive an immediate tax deduction.There are some things to know about giving cash vs. long-term appreciated assets though:

  • Cash Donations
    • If you donate cash, generally you can receive an income tax deduction of up to 60% of your adjusted gross income (AGI). 
  • Long-term Appreciated Asset

Instead of liquidating stocks or mutual funds, you can donate a highly appreciated stock or mutual fund to the DAF.  Generally, you can receive an income tax deduction of up to 30% of your AGI for the full fair-market value of the asset.  In other words, you don’t have to pay any capital gains on the sale if the stock or mutual fund has been held for more than a year and diversify the stock position without tax implications.

Some of the benefits of a donor-advised fund are:

  • Ability to support multiple charities, with a single contribution.
  • Income tax deduction (60% for cash and 30% for appreciated assets) during your highest earnings years.
  • Ability to contribute stocks, mutual funds, or non-publicly traded assets (including, art, real estate and vested stock options from your employer).
  • Option to support charities anonymously.
  • Ability to name successor to continue your charitable endeavors beyond your lifetime.

If you are curious to learn more about DAF’s and if they make sense for you and your family, please do not hesitate to reach out to your Element team!