Charitable giving through donor-advised funds (DAFs) has grown in popularity in recent years. A DAF comprises contributions made separately and independently by individual donors. The fund maintains legal control of the contributions, and donors retain advisory privileges regarding investments and fund distributions.
DAFs provide several advantages, particularly for high-income individuals. For example, they can help you:
Separate Tax Planning from Charitable Planning. When you make a contribution to a DAF, you receive an immediate tax deduction up to 50% of adjusted gross income (AGI) for gifts of cash and up to 30% of AGI for gifts of appreciated assets (with a five-year carryforward on gifts that exceed the limits). And, you can make contributions even before you have decided which charity will ultimately receive the funds or when that contribution will be made.
Make Larger Gifts. When an individual contributes appreciated stock to a DAF, he or she receives the full charitable deduction while avoiding the capital gains tax as long as the stock has been held for at least one year before the contribution. Donors can effectively make more generous charitable gifts because the charity receives the amount that would otherwise go to taxes.
Pursue Growth Opportunities. DAFs typically offer a variety of investment options. Therefore, contributions have the potential to grow while you determine how best to earmark the funds.
Contributing to a DAF could help you achieve both charitable and tax planning goals in one fell swoop. However, as with any financial strategy, making gifts using a DAF comes with potential drawbacks. Contact your financial advisor for further guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.