Contemplating the many ways your causes have grown and changed, and how you can best help those in need, does not need to wait until year-end. While you may feel inclined to set aside mid or end-of-year gifts for your favorite non-profits and charitable causes, it’s important to make sure your donations have maximum impact. One way to ensure that you can give to your favorite charities while also maximizing your year-end tax benefits is to open a Donor-Advised Fund. Donor-Advised Funds are the fastest-growing charitable giving vehicles in the United States because they are one of the easiest and most tax-advantageous way to give to the causes you support and love. Implementing a Donor Advised Fund isn’t complicated, and you will want to have one in place prior to distributing your charitable gifts each year. Current clients of The Wealth Conservancy can contact us for assistance if needed.
How a Donor-Advised Fund Works:
- Make a tax-deductible donation
Choose whether you would like to donate cash, stocks, cryptocurrency, or private company stock for a current year tax deduction. Donating via check or wire-transfer may qualify you for an income tax deduction of up to 60% of your Adjusted Gross Income, while donating low basis securities held for more than one year could substantially reduce or eliminate the amount you would otherwise pay in capital gains taxes.
- Grow your Donor Advised Fund tax-free
Consider an investment strategy (or hire an advisor) to grow your donation until you decide when and how you would like to pay it out. Remember, the money or assets you elect to invest in your Donor-Advised Fund cannot be removed once they are settled – this means your favorite charity will receive the full amount (if not more) of your total donation. Your Donor-Advised Fund may also be incorporated into estate planning so that your children or successors have even more to give over time.
- Support the causes you love
With a Donor-Advised Fund, you can support any 501(c)(3) IRS-qualified public charity, whether that’s a local animal shelter, your church or synagogue, or even your alma mater. If your preferred cause exists overseas, you can work with a qualified charity to make sure your gift goes where you want it.
Perhaps the greatest advantages to donating through a Donor-Advised Fund are the immediate tax benefits and freedom to control how and when your money is gifted. After depositing into your Donor-Advised Fund account, you may choose to donate to an approved charity right away, or invest your fund over several years so that it grows tax-free until you’re ready to distribute it to a qualified charity. Either way, you receive an immediate tax deduction for your contribution. If you elect to wait until your donation grows, you may retain advisory privileges over how your money is invested, and how and when to distribute these funds to charity.
An obvious alternative to a Donor-Advised Fund is a private foundation for giving. Unlike Donor-Advised Funds, a private foundation is its own legal entity requiring separate administrative costs, subject to complex rules and regulations outlined by IRS Publication 578. You can use this self-assessment survey to determine whether a Non-Operating Private Foundation or a Donor-Advised Fund may be best suited for your financial needs.
Giving a big gift this holiday season shouldn’t mean having to sacrifice your own financial well-being. By donating through a Donor-Advised Fund, you can ensure that your charitable interests are bolstered and supported for years to come. To test different scenarios and develop a plan, use this Charitable Donation Calculator.