Do you ever wish you had your own private foundation?
A private foundation can make it convenient to manage your philanthropy. But what if you could easily give to charity with even better tax benefits? And without needing millions of dollars to get started?
There is a way – create a donor-advised fund account. Donor-advised funds are easy to use, can be opened with just a few thousand fully tax-deductible dollars, and offer you a wide range of benefits beyond simply tax advantages.
Tax benefits that can’t be beat
The generous tax benefits are often the initial spark for people’s interest in opening a donor-advised account.
Organizations that offer donor-advised funds are public charities. That means, with a few limited exceptions, donating to a donor-advised account gives you the same tax benefits as any other 501(c)(3) public charity. What are some of those benefits?
- Take a deduction of up to 50% of adjusted gross income (AGI) when contributing cash. With a private foundation, you are limited to 30%.
- For gifts of appreciated stock, appreciated property, or closely held securities, you can deduct 30% of your AGI, compared to 20% for a private foundation. Some smaller charities are simply not set up to take these types of assets, but giving through a donor-advised fund makes it possible to use these assets to support those groups.
- Avoid capital gains taxes when contributing appreciated stocks while taking a deduction of the full value of the stock. You can give 100% of the gain to charity, avoiding the government’s cut.
- Grow charitable dollars tax-free by investing some or all the funds housed in your donor-advised account. Use the growth to make an even greater charitable impact later.
- Take a tax deduction in one year and make your charitable giving decisions over time. This is valuable for managing the tax consequences of an unexpected end-of-year windfall or required IRA disbursements.
Any donor-advised fund provider can offer the same assortment of tax benefits. The tax advantages, then, are a way to compare donor-advised funds against other charitable vehicles, such as a private foundation, rather than as a way to measure fund providers against each other.
More than tax benefits
Tax benefits, however, are just one reason so many Americans have begun giving through a donor-advised fund. Some of the other reasons people choose to use this charitable giving vehicle include:
- Simplified giving. The tedious, administrative work of confirming a charity’s 501(c)(3) tax status, sending the contribution, and receiving any follow-up correspondence from the charity is all handled by the donor-advised fund sponsor.
- Streamlined record-keeping. Instead of multiple charitable giving receipts, just keep up with the one from your donor-advised fund.
- Additional privacy. Inundated with direct mail? Donor-advised funds offer you the ability to give privately, shielding your identity from an organization and its mailing list.
- Flexibility. Make changes to your charitable estate plan without the need of an attorney when you use a donor-advised fun.
Considerations for opening a donor-advised fund
With more than 1,000 donor-advised fund providers in the United States, donors can receive all these benefits and still partner with a fund that truly understands their charitable goals. Many of the donor-advised funds affiliated with banks and investment houses are agnostic on where your charitable dollars go – or, more relevantly, where future generations decide to send your money. Other providers are mission-driven, centered on a set of principles that you may find more in line with your own. (Learn more about mission-driven funds here.)
A fund provider that shares your interests can more readily help you identify additional groups that work on your favorite issues. Also, a provider that aligns with your principles should be in a better position to carry out your donor intent after you are gone.
Establishing a donor-advised fund is a simple process. With some limited paperwork and a minimum initial contribution ranging from $5,000-$25,000, your account will be ready for grant making. With the generous tax advantages and simplicity of use, it is easy to see why donor-advised funds are America’s fastest growing charitable vehicle.
