While every client has their own taxable situation, there are three common reasons a donor-advised fund can serve as a powerful tax planning tool.
Let’s begin with, what is a Donor Advised Fund?
A donor-advised fund (DAF) is a charitable fund that enables donors to manage their charitable donations in simple, tax-smart and meaningful ways. Donors can receive the best tax advantages available and make grants to any charitable organizations throughout the U.S. on their own timeline.
What are the Tax Benefits of a Donor Advised Fund?
1. Income Tax Deduction: The donor receives an immediate tax deduction in the year they contribute to their DAF.
- Charitable deduction for cash – When you donate cash to a public charity, you can generally deduct up to 60% of your adjusted gross income.
- Charitable deduction for securities and other appreciated assets – Provided you've held them for more than a year, appreciated assets including long-term appreciated stocks and property are generally deductible at fair market value, up to 30% of your adjusted gross income.
- There is a five-year carry-forward for unused deductions.
2. Capital Gains Tax Avoidance: The donor will incur no capital gains tax on gifts of appreciated assets (i.e. securities, real estate, other illiquid assets).
3. Tax-Free Investment Appreciation: The investments in the DAF appreciate tax-free, providing the donor additional funds that they can use for charitable giving.
Unlike gifts made to a private foundation, donors can deduct the full market value of certain contributed assets, subject to the AGI limitations.
Contact Sheila Kinman at 561.340.4503 or firstname.lastname@example.org to discuss how a donor-advised fund can benefit your clients.
Note: The information provided herein is for informational purposes only and should not be interpreted to constitute legal and/or tax advice. Donors should consult their legal and tax advisors regarding their specific situations.