With a DAF, you control when the money is distributed, which means you can allow the investments to grow long term. The grant process can usually be completed online.
You can donate funds to any 501(c)(3) tax-exempt charity, and the minimum grant is typically $50. The last step is granting money to charity. If you plan to disburse funds in a shorter time frame, it is prudent to ensure they are invested in a lower-risk profile to help protect against market volatility. You can change the investment risk level and strategy as desired. Each administrator offers a different set of investment offerings, which makes it important to research your options. He also controls when they are distributed to the charities of his choice.ĭonor-advised funds provide a wide range of investment options, from mutual funds and exchange-traded funds (ETFs) to alternative investments (hedge funds and private equity). If Tom donates his shares to a donor-advised fund, he will not only avoid paying tax on the $70K but maintain control of how these funds are invested in a more diversified manner. This will amount to either 15% or 20% tax on the $70,000 gain. If Tom sells his shares and donates the proceeds to charity, he will owe long-term capital gains tax on the profit. Donating highly appreciated assets allows you to donate more and pay less in taxes.Įxample: Tom purchased $10,000 of Apple stock in 2013 at $15/share. The list of non-cash assets continues to expand and includes real estate, privately held business interests, and fine art and collectibles. While cash donations are still common, non-cash contributions tend to be a more tax-efficient method. This post will walk through these steps and describe who donor-advised funds might be best suited for. Because of this, annual contributions and total assets held in donor-advised funds have more than doubled since 2014! It is important to note that cash contributions allow you to take an income tax deduction of up to 60% of your adjusted gross income (AGI).ĭonor-advised funds follow a three-step process: The TCJA also made it so there is no overall limit on itemized deductions. Many philanthropically inclined taxpayers find themselves combining several years’ worth of charitable donations in the same year to push their total amount of itemized deductions above the standard deduction threshold.
In addition to providing a charitable deduction, a DAF allows you to maintain control of how the funds are invested and when they are disbursed to your favorite charities.ĭAFs gained mainstream popularity in the 1990s, and recent changes in tax laws-specifically, the 2017 Tax Cut and Jobs Act (TCJA)-have increased the appeal of donor-advised funds.
While the most common method is cash donations, the trend has been shifting toward donor-advised funds (DAFs), which allow you to donate to charity and receive an immediate tax deduction for doing so.Ī donor-advised fund is an investment vehicle administered by a public charity. For those with a desire for philanthropy, you have a variety of ways to donate to charitable organizations.