Smart Year End Tax Planning Through a Donor Advised Fund

In this month’s Waccamaw Wisdom, Karen Minogue unpacks how starting a Donor Advised Fund by Year-End (or adding to an existing Donor Advised Fund) can be a good tax planning strategy, help your community, and serve as an effective intergenerational giving tool too.

Suggestions for future topics are always welcome at [email protected].

A smarter way to give than checkbook giving

It’s that time of year again when you receive all kinds of requests from charities. Most of us spend some time in late December trying to figure out and scramble with our donations.

What if you could support all your favorite charities with just one donation? That’s the power of giving through a donor advised fund at Waccamaw Community Foundation.

What is a donor advised fund?

A simple, flexible and tax-efficient way to give to your favorite charities.

A donor advised fund, or DAF, is a charitable giving vehicle sponsored by a public charity that allows you to make a contribution to that charity and be eligible for an immediate tax deduction, and then recommend grants over time to any IRS-qualified public charity.

When you give, you probably want your charitable contributions to be as effective as possible. When you establish a donor advised fund, or donate to an existing donor advised fund, your donation has the potential to grow, tax-free, while you decide which worthy charities you wish to support.

How a donor advised fund works

 

1. Make a tax-deductible contribution

• Donate cash, stocks or tangible property and get your tax receipt.
• You’ll be eligible for an immediate tax deduction.

2. Support charities you love, now or over time

• You can support any IRS-qualified public charity with money in your donor advised fund.
• Waccamaw Community Foundation will conduct due diligence to ensure the funds granted out will be used for charitable purposes and is an IRS-qualified public charity.
• You and your family can play a role in your giving. Make it an intergenerational affair. This year, or in future years, perhaps even sitting around the Thanksgiving Day table, as a family you can discuss causes that each family member cares about. Through a donor advised fund, you can name successor fund advisors on your named donor advised fund to ensure a culture of giving in your family.

3. Family Philanthropy and Intergenerational Giving made easy

• A donor advised fund an effectively function as a family foundation offering much of the appeal and flexibility of a private foundation – without the regulations, requirements and overhead expenses.
• You and your family can play a role in your giving. Make it an intergenerational affair. This year, or in future years, perhaps even sitting around the Thanksgiving Day table, as a family you can discuss causes that each family member cares about.
Through a donor advised fund, if you wish to appoint successor fund advisors on your named donor advised fund, this can help ensure a culture of giving in your family, generation after generation.

4. Grow your donation, tax-free

• While you decide which charities to support, your donation can potentially grow, making even more money available for your favorite charities.
• Waccamaw Community Foundation will conduct due diligence to ensure the funds granted out will be used for charitable purposes and is an IRS-qualified public charity.

In addition, there are multiple tax benefits of using a donor advised fund for you’re giving:

Income tax deduction. You receive an immediate tax deduction the year in which your contribution to a donor advised fund is received. Depending on a donor’s adjusted gross income, there are IRS limitations, so it’s best to consult with your financial advisor for specifics about your particular situation.
Tax free growth. Your investments in your donor advised fund appreciate free of any tax liability.
No capital gains tax. There are no capital gains tax on gifts of appreciated stocks, bonds, real estate or other types of assets.
No estate tax. A donor advised fund is not subject to estate taxes.
Alternative minimum tax reduction. For donors who are subject to AMT, contributions to a donor advised fund may reduce this tax burden.

One of the most rewarding things one can do is to give back. Including charitable giving as part of a well thought out financial plan is not only emotionally gratifying – it can reduce estate taxes too. Waccamaw Community Foundation is your first resource and partner in all things charitable. Karen Minogue is poised to help you set up a charitable fund in as little as one day to support the causes you care about.

Call Karen at 843-357-4483 or e-mail her at [email protected] to find out more.

The purpose of this blog is to provide general gift, estate, and financial planning information. Always discuss your plans with your attorney, accountant, or financial advisor.