Because donor-advised funds are philanthropic giving vehicles administered by charitable sponsors, such as community foundations, they can benefit you for tax planning purposes.
Opening a fund provides tax benefits similar to other charitable donations, and your gift is immediately tax-deductible if you itemize deductions on your personal tax return. If you’re considering not itemizing your deductions due to the new tax law, you may want to explore how “bunching” your charitable deductions into a donor-advised fund can be an alternative tax strategy for you.
Donor-advised fund tax deductions include up to 60 percent of adjusted gross income (AGI) for gifts of cash and up to 30 percent of AGI for gifts of appreciated securities, mutual funds, real estate and other assets.
What is a donor-advised fund? Learn More >
Tax Benefits: Appreciated Stock and More
In addition to cash, you can receive a tax deduction for donating the following assets:
- Stock (public and private/restricted), bonds and mutual funds
- Partnership interests and pre-IPO shares
- Real Estate
- Individual Retirement Account (IRA)
- Life insurance
Donating appreciated stock comes with tax benefits because you can avoid or reduce capital gains or income tax penalties on contributions to donor-advised funds.
In the example below from the National Philanthropic Trust, a business owner has $100,000 in long-term appreciated stock, with a $10,000 cost basis.
|Donor Sells Securities and Donates After-Tax Proceeds to Charity||Donor Contributes Appreciated Securities Directly to Charity|
|Value of Appreciated Securities||$100,000||$100,000|
|Capital Gains Tax||$13,500||$0|
|Net Available to Charity||$86,500||$100,000|
Assuming a 35 percent income tax rate and a 15 percent long-term capital gains rate, the donor-advised fund allows this donor to avoid tax on his $90,000 gain and give more to charity ($13,500).
Other Tax Benefits
In addition to income and capital gains tax benefits, donor-advised funds are not subject to estate tax. Consult your estate planning professional to see if incorporating a fund into your estate plan may prove beneficial.
Lastly, your contribution to a donor-advised fund is invested, meaning your fund has the potential to grow tax-free and provide additional funding to your favorite nonprofit organizations over time.
Once your fund is open, it is the responsibility of the charitable sponsor to administer and invest the funds wisely. At The San Diego Foundation, our in-house Chief Investment Officer is available to discuss asset allocation and portfolio performance with donors. Additionally, our Investment Committee of professionals brings a combined 150 years of global and domestic expertise to build investment strategies that grow your giving and increase the impact of your charitable gifts. Assets are invested based on specific fund type to maximize return and strengthen your grantmaking power.
In addition to investment services, charitable sponsors assist with your charitable giving strategy, record-keeping, tax filings and confidentiality. Unlike private foundations, donor-advised funds allow the donor to remain anonymous, if desired.