6 contribution strategies for donor advised funds
One of the top ways to maximize both your tax savings and charitable donations is by starting a donor advised fund (DAF). A DAF is a charitable giving account, created expressly to support your preferred charitable organizations. As a charitable-gift funding system, a DAF allows you to allocate assets to a sponsoring nonprofit organization, potentially maximize the tax deductions available to you under the Internal Revenue Code, and implement a long-term, flexible giving strategy by investing your DAF balance and controlling the timing of grant recommendations. To put it simply, DAFs allow you the flexibility of investing and growing your contributions before they are distributed to your preferred nonprofit organizations.
Contribution strategies for donor advised funds
There are plenty of ways to use DAFs to support your charitable giving. Here are a few key strategies worth considering:
Appreciated securities and non-cash assets
Did you know that by donating appreciated stock that has been held for over a year, you can save money on capital gains and net investment income taxes while deducting the full market value of the shares?Therefore if you have an investment that you’ve held for a considerable amount of time and it has increased in value significantly, donating that investment may actually save you more in tax than selling it first and then donating the cash proceeds. .
A similar result can be achieved by donating other types of capital non-cash assets like real estate, fine art, automobiles, etc., provided the DAF sponsoring organization can use these assets to further its charitable mission for at least three years and your tax deduction is supported by a qualified appraisal of the asset’s fair market value.
Cash windfalls
If you’re lucky enough to experience a windfall, pushing you into a year with above average income, you can maintain your typical tax rate by allocating your windfall to a charitable organization such as a donor advised fund. Windfalls can occur when you offload stock positions, inherit and sell real estate, sell a business, or vest within one. A windfall could also be a significant bonus or generous severance allocation. Windfalls make excellent opportunities to fund a DAF, possibly securing your charitable giving for the rest of your life.
Please note, it’s possible that only your windfall (all or a portion of which) is subject to an increased tax rate, while your regular wages continue to be taxed at the same graduated rates. This is an area where your personal tax advisor can best assist, among others.
Bunching contributions
The standard deduction has increased since 2017, and if you’re weighing itemization and the standard deduction, you can explore the “bunching strategy”. This involves making multiple years’ worth of donations in a single year, resulting in an increased overall deduction for the same time period. For example, instead of donating equal amounts to to charity in two separate years, assume that doubling your donation in the first year causes your itemized deductions to exceed the standard deduction. The following year, the standard deduction is taken. As a result, it’s possible that by using this method, your total tax deductions over the two-year period are higher. When consulting with your personal tax advisor, be sure to address the 0.5% AGI and “Pease” limitations which can add complexity in certain circumstances.
Furthermore, if you’re contributing to a DAF, you get the added benefit of recommending grants to charities of your choice each tax year.
Spreading giving over time
One of the top features of a DAF is its flexibility. You control the timing of your charitable donations, the related tax deductions, and whether and how your DAF balance is invested. You have the ability to advise on which charities ultimately receive grants from your DAF account and when such grants occur. Furthermore, as the invested balance experiences tax-free growth as long as it doesn’t generate UBTI (“Unrelated Business Taxable Income).
Beyond that, donors have the ability to fund multiple charities over time, even with grants and non-cash assets.
Estate planning
When you fund a DAF, you’re committing a donation to charity that cannot be revoked. However, you and your named advisory board keep the privileges to recommend investments within the DAF and the charitable organizations it supports. The contributions you provide within your lifetime receive the immediate income tax deduction.
Although the contributions you make to your DAF within your lifetime provide an immediate tax deduction, bequeathing assets to your DAF may provide your beneficiaries the opportunity to save on on applicable state inheritance and estate taxes via the estate tax charitable deduction. This could result in significant tax savings, setting up your estate beneficiaries to receive maximum tax benefits alongside your designated charitable support. Be sure to work with your tax preparer to complete the forms needed by the charity to designate successor advisors, as generally the sponsoring organization is not required to respect DAF successor advisors appointed by a will.
Maximizing impact: Utilizing GoFundMe Giving Funds effectively
With this overview of DAFs, it’s important to understand how you can begin to create an impact and mobilize your assets while maximizing your charitable output. GoFundMe acts as a resource for all your tax-deductible donation initiatives, with plenty of flexibility. Operating in the digital sphere, you can easily donate funds on a monthly or annual basis, or make contributions when you have funds available.
GoFundMe Giving Funds gives you a choice of portfolio options based on your contribution amount and desired impact. The platform acts as a central hub for your top nonprofits, while also introducing you to new charitable organizations. Your tax-deductible donations are simplified by being housed in a single location with one receipt, making tracking them seamless.
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Putting your DAF contribution strategy into action
Now that the wide-ranging benefits of DAFs have been covered, it’s time to strategize your contributions. With GoFundMe, all your contributions are consolidated on a single website, freeing you from chasing receipts and historical email confirmations. Assuming you itemize, your tax savings start the year contributions occur, , and you can contribute at any time, from anywhere in the world.
GoFundMe Giving Fund’s DAFs don’t incur fees, so you’re fostering charitable contributions and tax savings without needing to meet the requirements of a minimum contribution or balance. Beyond that, it simplifies reporting during tax season, and you can keep going with your contributions thanks to streamlined recurring transfers that are easy to set up.
If you’re planning your philanthropic goals for the year ahead, GoFundMe Giving Fund’s DAFs make it easy to start where you are and grow from there.
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FAQs About DAF Contribution Strategies
What are the most common forms of charitable giving?
The top forms of charitable giving include donating via cash, from savings and checking accounts, or direct monetary gifts. Stocks or positions and securities represent another way to give, and there are a host of nonprofit organizations that accept bonds, stocks, mutual funds or other securities as contributions. Other giving methods include charitable trusts, planned giving, and the allocation of valuable assets, all of which can be used to fund a DAF.
Are there any fees associated with managing a donor-advised fund?
While other DAFs may require fees, GoFundMe Giving Fund’sDAFs do not require a fee from the account holder. There’s no minimum contribution needed to open an account, and you can contribute amounts as low as $5. What’s more, you receive just one tax receipt for all of your donations.
How do DAFs encourage long-term philanthropic planning?
DAFs come with numerous tax benefits that let you save on fees and taxes you would otherwise incur. Once you start your charitable planning, you can organize for all your future surges in income or ownership to be directed into your DAF. You can also ensure your planned giving continues beyond your lifespan.
How do I track my charitable impact through my DAF?
In your GoFundMe account, simply click on your contributions to view and download a contribution receipt. You can also review an annual summary of all contributions and grants.