Giving money directly to a favorite charity isn’t the only way U.S. taxpayers can receive an annual deduction for their donations. They can also set up an account called a donor-advised fund (DAF).

A donor-advised fund is like a charitable investment account, its purpose is to support charitable organizations you care about. When you contribute to a donor-advised fund you are generally eligible to take an immediate tax deduction. Then those funds can be invested for tax-free growth and you can make distributions or grants to virtually any IRS-qualified public charity.

When you give, you want your charitable donations to be as effective as possible. Donor advised funds eliminate the administrative requirements and operating costs involved with running a private foundation. Making them the fastest-growing charitable giving vehicle in the United States.

But before you just write a check to fund an account, consider the possible tax advantages of donating other appreciated assets like stock, private business interests or other non-publicly traded assets. Donors may be able to give up to 20% more because capital gains taxes are minimized. You’ll take a fair market value deduction and provide more support for your favorite charities. Of course, it is recommended to speak with a tax professional before implementing a strategy like this.

Another tax strategy would be to fund a donor advised account in the same year as the sale of an appreciated asset. This not only reduces the taxes owed on the sale of the asset, but also benefits your favorite charity.

Remember a contribution to a donor-advised fund is an irrevocable commitment to charity; the funds cannot be returned to the donor or any other individual or used for any purpose other than grant making to charities.

While you’re deciding which charities to support, your donation can potentially grow, making available even more money for charities. Most sponsoring organizations have a variety of investment options from which to choose from for your charitable dollars.

If you would like to learn more about how to implement this strategy, just give us a call. We will work with you on your options and will be available to discuss with your tax professional if necessary.


*This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor