by One of my friends is a generous giver and writes monthly checks to the charities she cares deeply about. I recently asked her if she was aware of tax-efficient ways to give. She said she preferred to write checks the old fashioned way. It gave her great satisfaction.
For those that love to give the old fashioned way, continue to read on.
For those that love to give and still would like to do it with potential tax benefits, also read on.
There are many structures which can be set up for tax-efficient giving.
Donor-Advised Funds are one popular vehicle.
The IRS defines a donor-advised fund as a separate account that is maintained and operated by a public charity called a sponsoring organization. Each account, or fund, is composed of contributions made by individual donors.
Once the donor makes the contribution, the organization has legal control over it. However, the donor still has a say in the distribution and investment of the account’s funds.1 The fund can be financed with cash, securities, bonds, or other financial instruments.
The idea is simple, yet the tax benefit is valuable. The moment you fund your “giving” account, you get an immediate tax deduction, even if you don’t immediately donate. In other words, the donor, the one who is giving, receives the maximum tax deduction at the time they donate, or fund, their account.
Here’s how it works. Say you decide to allocate $10,000 a year to charity. You write a check to your donor-advised fund at beginning of the year, you get an immediate tax deduction. When you decide to donate, you take out your DAF check book–yes you still get that great feeling of writing out a check–you write a check and send it off to your charity. Of course you could also electronically transfer funds to the charity.
Another benefit of a donor-advised funds is being able to donate appreciated securities or other assets to get a tax deduction for the market value of the donation and avoid capital gains taxes. By donating appreciated assets to the donor-advised fund and then advising the fund to make donations to several charities, one can reap a double-tax advantage without the hassle and paperwork of transferring non-cash assets to several organizations. The combination of convenience and full tax advantage is one reason donor-advised funds are so attractive.2
While we don’t give tax advice, we can work with your tax professional and help you give more of your money to charities, and less to Uncle Sam.