Despite the rollercoaster ride the stock market has taken in 2020, many investors have profited handsomely on investment portfolios over the last 10 years. For individuals with appreciated assets in taxable accounts, a Donor Advised Fund (DAF) may be an ideal way to boost philanthropic giving while saving tax dollars.
A DAF is like a charitable investment account. Most large financial custodians such as Vanguard, Schwab, or Fidelity operate DAFs as
do many local community foundations. These custodians essentially act as a conduit to hold the donated funds—typically in conservative investments—before distributing them to virtually any IRS-qualified public charity over time, as directed by the donor. When donors contribute cash, securities or other assets to a DAF, they are generally able to take an immediate tax deduction. They can then spread out their charitable giving beyond the current year.
The Tax Cuts & Jobs Act that went in to affect in 2018 reduced the number of taxpayers itemizing charitable contributions by more than
half, as many households no longer had itemized deductions exceeding the increased standard deduction. Because of these tax law changes, a donor advised fund may be a useful option to consider.
Assume, for example, that for the 2020 tax year a couple decided to bundle their charitable giving. Instead of giving $10,000 each year
for three years, they directed one larger donation of $30,000 in appreciated assets to a DAF. When combined with their other itemized
deductions, they would now exceed the standard deduction, and receive a charitable deduction of $30,000 in 2020. The $30,000 in assets can grow tax-free, and then be directed to support their intended charitiesover the next several years as they choose.
Consider using a DAF in 2020 and by the end of the year, you may be able to put a little more in the coffers of your favorite charity—and a little less in those of Uncle Sam!
By Tim Sullivan
Tim is a Certified Financial Planner and the founder of Clarity Financial, a fee-only financial planning firm in Columbia, MO.He can be reached at tim@goclarityfinancial.com.
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