For example, if you don’t think you will be over the standard deduction with your normal yearly gifting, you may want to donate 3-5 years’ worth of donations into the donor-advised fund in the current year. Many people who previously itemized their deductions are now using the increased standard deduction. The assets in the fund can fuel donations now and/or in the future.Įven if you do not have a big income event, you may want to consider “bunching” your donations every couple of years.
You can take the deduction in the year you are in a higher tax bracket to help reduce your tax liability and front-load your donor-advised fund. It’s strategic to time the deduction to coincide with a year that you receive a large bonus, sell a company, or have another extraordinary income event. Taking a tax deduction when you place your assets in the donor-advised fund is a powerful tax benefit.
DONATIONS FROM DONOR ADVISED FUNDS AND LOOKTHROUGH HOW TO
How to Take Advantage of a Donor-Advised Fund’s Tax Benefits Keep in mind some small charities don’t have the resources or experience to know how to handle a stock gift. (You would have to recognize the gain on the stock if you sold it outright.) You can donate appreciated stock directly to a qualifying charity. You can take a deduction for the fair market value of the stock (as opposed to your purchase price) if you’ve held the stock for a year and never recognize the gain on the stock. Most people donate appreciated stocks into the fund because of the added tax benefit. You can place many types of assets into a donor-advised fund including cash, stocks and real estate. You receive the tax deduction when you place the assets in the donor-advised fund, not when the funds are distributed out to the charity of your choice. How a Donor-Advised Fund WorksĪ donor-advised fund is a fund that you can make tax-deductible donations to, the donations can grow tax-free, and you can support your favorite charities now and in the future. Let’s explore how they work, why they are beneficial from a tax perspective, and some special charitable deduction rules that are new for 2020.
As a CPA, one of the questions that I have been getting more frequently is, “What is a donor-advised fund?” This is not surprising as the number of individual donor-advised fund accounts has grown by over 50% for the second year in a row, according to the National Philanthropic Trust’s 2019 DAF Report.
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