Choosing and establishing the right charitable vehicle can be challenging as there are many factors to consider and several options to choose from. A donor-advised fund provides some tax advantages if you are looking for a way to create a charitable vehicle to meet your charitable goals in the most tax-efficient and effective way.
What is a Donor-Advised Fund?
A donor-advised fund is a giving account administered by and housed in a public non-profit sponsor organization, such as a community foundation, university, religious organization, or financial institution.
Considerations Before Establishing
Below are items to take into consideration in determining if a donor-advised fund would be a good fit for you.
- A donor-advised fund is not an independent legal entity, but an account maintained by the sponsoring organization.
- Donors can make recommendations as to how the funds are invested and granted out but give up legal control. Investment and grant requests must be approved by the sponsoring organization.
- Donor-advised fund sponsors typically have rules against gifting assets to a private foundation.
- Grants can be made anonymously.
- Fees associated with a donor-advised fund are less than those connected to a private foundation.
6 Tax Advantages of a Donor-Advised Fund
- Donations are treated the same as donations you would make to a public charity. Cash donations are deductible up to 60% of your adjusted gross income and appreciated assets are deductible up to 30% of your adjusted gross income.
- Donors make a charitable contribution and receive an immediate tax deduction even though the money may not be dispersed to a charity until a later time.
- Donors may be able to avoid paying capital gain taxes by donating highly appreciated assets. The donor would receive an income tax deduction for the fair-market value of the asset on the date of contribution.
- The assets can grow tax-free which, in turn, can generate more money for charitable giving.
- Annual tax filings are not required for donor-advised funds. Annual distributions are not required and there is no tax on investment income.
- Donor-advised funds will not be subject to estate taxes.
Another charitable vehicle you may be interested in establishing is a private foundation. Learn about its potential tax benefits here.
To help determine what specific tax advantages you would gain by establishing a donor-advised fund, please contact your Untracht Early advisor.