Donor-Advised Funds
A popular tool to help donors maximize their charitable impact and take advantage of tax incentives.
What Are Donor-Advised Funds?
A donor-advised fund (DAF) is a philanthropic vehicle established at a public charity (examples include the Community Foundation of Sonoma County, Fidelity Charitable, Vanguard Charitable, or Schwab Charitable). It allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. This flexibility makes DAFs an attractive option for donors who want to plan their giving strategically.
Tax Incentives of Donor-Advised Funds
Immediate Tax Deduction: When you contribute to a DAF, you receive an immediate tax deduction for the full amount, even if the funds are distributed to nonprofits over several years.
Avoid Capital Gains Tax: By donating appreciated assets like stocks, you can avoid capital gains tax, allowing you to give more to your favorite causes.
Manage the Timing of Your Deduction: Because a contribution to a DAF is a gift to a public charity, donors who contribute to their DAFs are eligible to take a tax deduction in that calendar year. Donating cash by check or wire transfer generally means that the donor will be eligible to deduct up to 60% of their adjusted gross income (AGI), with a five-year carry-forward for unused deductions. By controlling the timing of the DAF contribution, donors can manage the timing their own tax deductions while planning for future grantmaking to qualified charities.
How to Set Up a Donor-Advised Fund
Choose a Sponsoring Organization: Many public charities offer DAFs, including Fidelity Charitable, Schwab Charitable, and Vanguard Charitable. The Community Foundation of Sonoma County also has this option. Be sure to research into the various options to see which organization aligns best with your values and charitable goals. Consider their fees, investment options, and grant-making policies.
Make a Contribution: You can contribute a variety of assets to your DAF, including cash, stocks, mutual funds, real estate, and other appreciated assets. Once you make the contribution, you receive an immediate tax deduction.
Recommend Grants: At any time, you can recommend grants from your DAF to qualified nonprofits like the Sebastopol Area Senior Center. You can support multiple nonprofits and adjust your strategy at any time.
If you're interested in setting up a DAF or learning more about how to maximize your charitable giving, we are here to help, or discuss with your financial advisor.
*Disclaimer: information provided was pulled from various sources across the internet; it's important to always do your own research.
