Donor advised funds
If you're donating more than $10,000, we make it easier for you to achieve your philanthropic goals through the advantages of Donor Advised Funds (DAF).
The Tax Advantages of Donor-Advised Funds
Giving with a donor-advised fund can be a tax-efficient way to conduct your philanthropy. Below are a few strategies to reduce your tax liability using a donor-advised fund while increasing your charitable impact.
Grow Your Charitable Dollars Tax-Free.
The charitable dollars in your donor-advised fund (DAF) can be invested before they are granted out. With market growth, your DAF balance can also grow. This makes even more money available for grantmaking. Moreover, while you can take an immediate tax deduction for the gifts you make to your DAF, you will not be taxed on any growth, since the assets belong to the DAF’s charitable sponsor.
Reduce Tax Burden in a Windfall Year.
DAFs can reduce tax burdens after a windfall situation, such as receiving an inheritance, selling a business, or experiencing strong market returns. You can take an immediate tax deduction when you make a charitable contribution to your DAF, reducing your tax liability. DAFs allow you to recommend grants to your favorite charities over time, so you can effectively pre-fund years of giving with assets from a single high-income event.
Contribute Appreciated Assets to Reduce or Eliminate Capital Gains.
Direct donation of publicly traded securities (or other illiquid gifts) is one of the most common ways to fund a DAF. This is a particularly tax-efficient method because securities that have been held for more than one year can be donated at their fair market value, and are not subject to capital gains tax. If a donor were to liquidate their assets and later donate the proceeds to their DAF, the amount would be reduced by capital gains tax, leaving less money available for philanthropy. Donors receive an immediate tax deduction of up to 30% of adjusted gross income (AGI) for gifts of appreciated securities, mutual funds, real estate and other assets, and can enjoy five-year carry-forward deduction on gifts that exceed AGI limits.
Donating Appreciated Stock: A Case Study
By donating appreciated stock held for more than one year directly to a DAF—rather than liquidating it and then donating the proceeds—philanthropists can reduce their tax liability by eliminating capital gains tax, as well as reducing their marginal income tax.
In the hypothetical example below, a donor has $100,000 in long-term appreciated stock, and its original cost-basis purchase price was $10,000:
The Tax Advantages of Donor-Advised Funds
Giving with a donor-advised fund can be a tax-efficient way to conduct your philanthropy. Below are a few strategies to reduce your tax liability using a donor-advised fund while increasing your charitable impact.
Grow Your Charitable Dollars Tax-Free.
The charitable dollars in your donor-advised fund (DAF) can be invested before they are granted out. With market growth, your DAF balance can also grow. This makes even more money available for grantmaking. Moreover, while you can take an immediate tax deduction for the gifts you make to your DAF, you will not be taxed on any growth, since the assets belong to the DAF’s charitable sponsor.
Reduce Tax Burden in a Windfall Year.
DAFs can reduce tax burdens after a windfall situation, such as receiving an inheritance, selling a business, or experiencing strong market returns. You can take an immediate tax deduction when you make a charitable contribution to your DAF, reducing your tax liability. DAFs allow you to recommend grants to your favorite charities over time, so you can effectively pre-fund years of giving with assets from a single high-income event.
Contribute Appreciated Assets to Reduce or Eliminate Capital Gains.
Direct donation of publicly traded securities (or other illiquid gifts) is one of the most common ways to fund a DAF. This is a particularly tax-efficient method because securities that have been held for more than one year can be donated at their fair market value, and are not subject to capital gains tax. If a donor were to liquidate their assets and later donate the proceeds to their DAF, the amount would be reduced by capital gains tax, leaving less money available for philanthropy. Donors receive an immediate tax deduction of up to 30% of adjusted gross income (AGI) for gifts of appreciated securities, mutual funds, real estate and other assets, and can enjoy five-year carry-forward deduction on gifts that exceed AGI limits.
Donating Appreciated Stock: A Case Study
By donating appreciated stock held for more than one year directly to a DAF—rather than liquidating it and then donating the proceeds—philanthropists can reduce their tax liability by eliminating capital gains tax, as well as reducing their marginal income tax.
In the hypothetical example below, a donor has $100,000 in long-term appreciated stock, and its original cost-basis purchase price was $10,000:
Using a DAF, this donor would have more available to give to charity and would pay less in taxes. This strategy can often allow donors to give more than 20% more to the causes they care about.
Note: For the purposes of illustration, this hypothetical example assumes a 35% income tax rate. It also assumes that all realized gains are subject to the federal long-term capital gains rate of 20% and the Medicare surtax of 3.8%. No other state taxes are taken into account.
Benefits of Donor-Advised Funds
As philanthropy changes to meet the demands of an increasingly complex and interconnected world, donor-advised funds (DAFs) are growing in popularity. Active donors supporting a wide range of causes, advisors providing a greater suite of professional resources to their clients, and all parties searching for a deeper knowledge about the charitable landscape are discovering DAFs as an effective and efficient method of philanthropic giving.
The impact of DAFs on the world of philanthropy is growing as more donors turn to DAFs to meet their philanthropic goals. As detailed in the 2023 NPTRUST.org DAF Report:
DAFs have become popular in part because of their versatility; allowing donors to give when, what, how, and where is most favorable for them. There are many reasons why donors choose a donor-advised fund as a philanthropic giving vehicle. Charitable giving with a donor-advised fund can be a tax-efficient way to build a charitable legacy.
Benefits of a donor-advised fund include:
Note: For the purposes of illustration, this hypothetical example assumes a 35% income tax rate. It also assumes that all realized gains are subject to the federal long-term capital gains rate of 20% and the Medicare surtax of 3.8%. No other state taxes are taken into account.
Benefits of Donor-Advised Funds
As philanthropy changes to meet the demands of an increasingly complex and interconnected world, donor-advised funds (DAFs) are growing in popularity. Active donors supporting a wide range of causes, advisors providing a greater suite of professional resources to their clients, and all parties searching for a deeper knowledge about the charitable landscape are discovering DAFs as an effective and efficient method of philanthropic giving.
The impact of DAFs on the world of philanthropy is growing as more donors turn to DAFs to meet their philanthropic goals. As detailed in the 2023 NPTRUST.org DAF Report:
- Donors granted $52.16 billion to nonprofit organizations from their DAFs in 2022.
- Contributions to DAFs and grantmaking from DAFs grew in tandem in 2022, at a rate of 9 percent.
- In 2022, donors contributed $85.53 billion to their DAFs.
- There are now nearly 2 million DAF accounts.
DAFs have become popular in part because of their versatility; allowing donors to give when, what, how, and where is most favorable for them. There are many reasons why donors choose a donor-advised fund as a philanthropic giving vehicle. Charitable giving with a donor-advised fund can be a tax-efficient way to build a charitable legacy.
Benefits of a donor-advised fund include:
- Contributions via DAFs help donors maximize tax benefits.
- Donors can contribute immediately, build a philanthropic strategy and recommend grants when ready.
- Charitable assets may grow over time, making more charitable dollars available to nonprofits.
- DAFs provide streamlined grantmaking, helping philanthropic dollars reach nonprofits quickly and efficiently.
- DAF sponsors handle all due diligence and reporting, simplifying organization and administration.
- DAFs can be used to facilitate a charitable legacy, dovetailing conveniently with estate planning.
- Donors can choose how they are acknowledged and what personal information they wish to share when making grants from their DAFs.
- DAFs can be useful in the development of donors’ philanthropic vision, strategy and philosophy.
- DAFs can accept as contributions a wide range of assets such as cash, stock, cryptocurrency and real estate. Also, Donors can support international charities and NGOs and still being eligible to claim a federal tax deduction.
DAF Guides and Guardrails
As detailed above, DAFs are highly effective and efficient vehicles for charitable giving. There are certain rules and guidelines DAF donors must follow, however. Keep these facts in mind as you begin your philanthropic journey:
Contributions to a DAF are irrevocable. Once you contribute funds to your DAF, you cannot get the funds back and they cannot be used to provide any financial benefit to you or your family.
Contributed funds must be used exclusively for charitable purposes.
DAF providers usually require a specified minimum contribution to open a DAF.
DAFs can only process grant requests to qualified charitable organizations or for charitable purposes.
DAF sponsors assess fees on the DAF balance to cover costs associated with managing and administering the DAF.
DAFs do not have a payout requirement by law, but most DAF sponsors enforce minimum account activity policies.
The information provided here is general and educational in nature. It is not intended to be, nor should it be construed as, legal or tax advice. We do not provide legal or tax advice. Furthermore, the content provided here is related to taxation at the federal level only, and you may want to consult with your tax advisor or attorney regarding charitable contributions of more than $10,000. Some above information was sourced from nptrust.org
As detailed above, DAFs are highly effective and efficient vehicles for charitable giving. There are certain rules and guidelines DAF donors must follow, however. Keep these facts in mind as you begin your philanthropic journey:
Contributions to a DAF are irrevocable. Once you contribute funds to your DAF, you cannot get the funds back and they cannot be used to provide any financial benefit to you or your family.
Contributed funds must be used exclusively for charitable purposes.
DAF providers usually require a specified minimum contribution to open a DAF.
DAFs can only process grant requests to qualified charitable organizations or for charitable purposes.
DAF sponsors assess fees on the DAF balance to cover costs associated with managing and administering the DAF.
DAFs do not have a payout requirement by law, but most DAF sponsors enforce minimum account activity policies.
The information provided here is general and educational in nature. It is not intended to be, nor should it be construed as, legal or tax advice. We do not provide legal or tax advice. Furthermore, the content provided here is related to taxation at the federal level only, and you may want to consult with your tax advisor or attorney regarding charitable contributions of more than $10,000. Some above information was sourced from nptrust.org