Are you charitably inclined? Do you typically write a check to your favorite charities at the end of the year?

What if I told you there was a way to support your favorite charities in an even MORE advantageous way.

Let’s look at how utilizing a Donor-advised Fund account (DAF) can do just that.

What is a Donor-Advised Fund?

A donor-advised fund allows you to contribute assets, receive an immediate tax deduction, and recommend grants to charities over time. Managed by a sponsoring financial institution like Schwab or Fidelity, a DAF lets your contributions grow tax-free until distributed to eligible nonprofits.

The Benefits of Donor-Advised Funds

DAFs help maximize your impact with these advantages:

• Immediate Tax Benefits: Claim a tax deduction immediately, even if you distribute the funds later.

• Tax-Free Growth: Contributions can be invested and grow tax-free, increasing the amount available for grants.

• Flexibility and Convenience: Simplify giving by consolidating donations into one account, enabling grants to multiple organizations without extra logistics.

• Strategic Philanthropy: Take time to align donations with long-term charitable goals.

Tips for Getting the Most Out of Your Donor-Advised Fund

Here are strategies to optimize your DAF:

1. Plan Contributions Strategically
Fund your DAF during high-income years or taxable events, like selling a business. Contributing appreciated assets, such as stocks or real estate, avoids capital gains taxes and offers full fair-market-value deductions.

2. Invest for Growth
Invest DAF contributions to grow tax-free, increasing the total available for grants.

3. Align Giving with Your Values
Identify causes that match your values and create a strategic giving plan.

4. Involve Your Family
Engage family in decision-making to foster a culture of shared giving.

5. Bundle Contributions
“Bunch” several years’ contributions into one DAF contribution to maximize tax deductions during high-income years.

6. Stay Informed
Keep up with tax laws and work with your financial advisor to optimize your giving strategy.

7. Evaluate and Adjust
Review DAF investments and grant impact regularly to ensure your goals are met.

Real-World Example

This year is shaping up to be a high income year for you (YAY!). You may have received a big bonus or stock from your company, sold real estate or a business, etc. However, as your income eclipses the higher tax brackets, you will be paying tax at higher rates (boooooo).

Let’s also say that you typically support some of your favorite charities at the end of the year by writing them checks that total $10,000.

This year, your smart financial advisor tells you about contributing to a DAF with highly appreciated securities.

Your financial advisor and tax professional recommend a $20,000 contribution towards a DAF using MSFT stock, which is up 300% from when you purchased it.

Three Key Benefits:

• A $20,000 tax deduction is received in the current year.

• You forego ever having to pay capital gains tax on the growth ($20,000 stock purchased for $5,000 = $15,000 gain that if sold, would incur capital gains tax).

• The $20,000 of charitable contributions may be made out to any number of 501(c)(3) charities across as many years as you would like.

HOW POWERFUL IS THAT!!!