Boost the Impact of Your Charitable Giving with a Donor Advised Fund (DAF)

What we’ll cover:

• What is a Donor Advised Fund (DAF)?
• Is a Donor Advised Fund (DAF) right for me?
• Use Cases
• Limitations

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What is a Donor Advised Fund (DAF)?

A Donor Advised Fund (DAF) is a charitable giving vehicle that allows you to contribute to an account that’s operated by a 501(c)3 organization.

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• Your contribution to the fund is treated as a charitable donation when it’s made. You receive an immediate tax deduction when you donate cash, securities, crypto, private company stock, real estate and more.
• As the donor, you retain advisory privileges regarding how your funds are invested and distributed. This includes when, how much, and to which organizations your funds are ultimately paid to.

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Is a Donor Advised Fund (DAF) right for me?

You are most likely to benefit from a DAF if you:

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• Own appreciated securities (ie stock, crypto, etc)
• Usually give at least $5,000 to charity each year, and/or
• Are interested in reducing your taxes by giving to charity

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Still interested? Let’s dig deeper!

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#1: You own appreciated assets (ie stock, crypto, etc)

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If you contribute, appreciated, long term investments to a DAF, you receive a charitable deduction for the value of the assets contributed. This means you:

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• Receive a tax deduction for the FMV of your contribution → this is the amount you would have donated if you sold the asset (for a gain) and contributed the cash
• Never pay tax on the gain!

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#2 You usually give at least $5,000 to charity each year

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While many are low, there are administrative costs to open and maintain a DAF. You should weigh the costs against your anticipated benefits with making a decision.

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#3 You’re interested in reducing your taxes by giving to charity

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This strategy is not right for someone interested in retaining control of the assets they donate to a DAF, since your rights will be limited to an advisory capacity. In short, you can’t take it back.

Use Cases

Combine multiple years worth of giving in a single tax deduction

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If you have an income event that put you in a higher tax bracket than usual, you can “stack” your annual charitable contributions.

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For example, if you generally contribute $10,000 to charity each year:

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• If you contribute $50,000 to a DAF in year 1, when you’re in the 37% tax bracket, and distribute $10K/year to charitable organizations, you will enjoy ~18K in tax savings over 5 years
• If you contribute the same $50K annually over 5 years, and you’re in the 24% tax bracket years 2-5, you will enjoy ~$13K in tax savings over 5 years
• In this example, stacking contributions would save ~$5K

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This strategy also works if your total itemized deductions are close to the standard deduction, to ensure you maximize the tax incentives from your charitable giving.

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Consolidate your record-keeping

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If you give to multiple charities and have a hard time keeping track of donations/receipts, a DAF simplifies your giving and record-keeping: your only contribution for tax purposes is what was given to the DAF.

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Limitations

When deciding what, and how much to contribute to a donor advised fund, you should keep in mind:

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#1 The amount you can claim as a tax deduction may be limited, based on your adjusted gross income (AGI)

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• Cash donations are eligible for a tax deduction of up to 60% of your AGI in a year, and
• Donations of appreciated assets are eligible for a tax deduction of up to 30% of your AGI

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#2 Once your assets are in a donor advised fund, they can only be distributed to a public charity (not a family foundation)

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This information is for educational purposes only and does not constitute financial advice. Consult a qualified professional before making any investment decisions.