A donor-advised fund, or DAF, is a giving vehicle established for a public charity. It allows donors to make a charitable contribution, receive an immediate tax deduction (link to advantages page) and then recommend grants from the fund over time. Donors can contribute to the fund as frequently as they like, and then recommend grants to their favorite charities whenever makes sense for them.
Donors Contribute --> Assets Grow --> Habitat for Humanity Cabarrus County Benefits
- You make an irreversible contribution of personal assets, including real estate, cash, stock and more.
- You immediately receive the maximum tax deduction that the IRS allows.
- You name your donor-advised fund account, advisors, and any successors or charitable beneficiaries.
- Your contribution is placed into a donor-advised fund account where it can be invested and grow tax-free.
- At any time afterward, you can recommend grants from your account to qualified charities.
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.
If you are interested in supporting Habitat for Humanity Cabarrus County via a Donor Advised Fund, here are some resources to help you get started:
Fidelity Donor-Advised Funds Link: https://www.fidelitycharitable.org/
Vanguard Donor-Advised Funds Link: https://www.vanguardcharitable.org/
Schwab Donor Advised Funds Link: https://www.schwabcharitable.org/public/charitable/home