The Season of Giving
The holidays are upon us and other than spending time with family and friends nothing feels better than giving back to your community and supporting organizations working hard to better our world. Charitable giving is rooted in generosity and caring for a good cause, but it is still a financial decision for which you should use careful consideration. There are many ways to donate to charities and along with the satisfaction of doing a great thing, you can also get some tax benefits from your charitable contributions. One great option for donating to charities is creating a donor-advised fund.
What is a Donor-Advised Fund?
A donor-advised fund is a charitable giving account established at a public charity. To use one of these funds you simply contribute funds to the account whenever you would like which generally results in an immediate tax deduction. You can then recommend grants to your favorite organizations over time whenever you would like to do so.
The first step is to donate to the fund. This donation can be in the form of cash, stocks, cryptocurrency, real estate, and more. This donation is irrevocable so any amount you choose to donate cannot be returned to you or any other individual and those funds can now only be used for grantmaking. This donation results in an immediate tax deduction for the year in which the donation is made because the fund sponsors are public charities which qualify for the deduction. Most sponsoring organizations have investment options for your charitable dollars to allow for even more money to be available for charities in the long run. If you choose one of these investment plans the assets you contributed to the fund can grow tax-free.
Looking away from the financial side of these donor-advised funds they are also great because they can be personalized to fit your charitable goals. You can create a name for your fund and appoint your own family and friends to manage the responsibilities. You can even create a legacy plan by appointing successors or charitable beneficiaries so that you can control what happens with your assets in the fund beyond your lifetime. You also have the power to recommend grants to the charitable organizations that you would specifically like to support. In addition to choosing where your assets go, you can also decide how often you would like to make your donations and if you would like recognition or anonymity. Almost any public charity can be recommended, and, in some cases, private foundations can also be donated to. The fund sponsor will ensure that the funds go to a qualified charity and that those funds will be used for charitable purposes.
Benefits of Donor-Advised Funds
Donor-advised funds have proven to be a simple, flexible, and tax-efficient way to contribute to your charities of your choosing. Here are some of the reasons these are becoming a popular option for charitable giving:
- Easily contribute a wide range of assets
- Maximize tax benefits
- Grow your charitable dollars tax-free
- Flexibility in when and where your donations go
- Simplify recordkeeping and organization
- Choose how you are acknowledged
- Create a charitable legacy
Any opinions are those of Jim Hyre and not necessarily those of Raymond James.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.
Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Donors are urged to consult their attorneys, accountants, or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.
*The ability to recommend grants at any time could change in the future depending on the implementation of new tax laws. It is important to consult a tax advisor.