Bread and butter. Romeo and Juliet. Nuts and bolts. Salt and pepper. Love and marriage. Tax planning and philanthropy. Some things were just meant to go together.
If that last pair caught you off guard, you’re probably not alone. Though it may not seem like it, tax planning and philanthropy really do go hand in hand and there’s no better example than in a donor advised fund.
What Is A Donor Advised Fund?
A donor advised fund (DAF) is like a philanthropic savings account. You put money into it for the purpose of giving to charity but you can let it sit there awhile until you are ready to give. Unlike a savings account, though, all contributions are irrevocable. Once you put an asset in a DAF you can’t take it back.
Donor advised funds allow you to get an immediate tax benefit for charitable gifts that you will make in the future. Though you don’t technically retain ownership when you put money or assets into a DAF, you still retain control. You get to name your DAF account, advisors, successors, and beneficiaries.
What Are The Tax Benefits Of A Donor Advised Fund?
The major benefit of using a DAF is for tax planning. You get an immediate tax deduction when you contribute, even if the money has yet to be given to the charity of your choice. Any limit to the deduction you are allowed to take depends on what kind of assets you contribute to the DAF.
Publicly traded securities are a popular asset to contribute to a DAF. This is because you can avoid paying long-term capital gains taxes and still deduct the fair market value of the securities (if held over a year). If you buy a security at $100 and put it in a DAF when it is worth $200, you get to deduct $200 of charitable giving without paying taxes on the $100 in gains.
Contributions of long-term capital gain property, like appreciated securities, can be deducted up to 30% of adjusted growth income (AGI). For all other contributions, including cash, you can deduct up to 50% of AGI. If your contributions exceed your deductible limit, you can carry them forward to the next tax year.
Also, all contributions can be invested within the DAF to grow tax-free. Once assets are in a DAF, they belong to a charity and are therefore exempt from taxes.
How Are Donor Advised Funds Used?
Let me show you an example of how a DAF can be used. I recently had a client referred to me because he wanted to create a scholarship fund for his high school and his CPA wasn’t quite sure how to help him.
I helped him set up a donor advised fund. He saved $25,000 in taxes for the year in which we set up the DAF based on his contribution. Through his DAF, he is going to award two scholarships annually that will help high school students pursue a college degree. His DAF is making it possible for him to fulfill his philanthropic goals while also saving a lot on taxes.
How I Can Help
Are you like my client? Do you have a generous heart and a desire to minimize your tax liability? A donor advised fund might be just what you’re looking for. I have helped many people setup DAFs in order to maximize their charitable giving, and I can help you too.
If you already work with a trusted CPA, don’t feel like you have to choose between working with them and working with me. I regularly partner with CPAs in order to set up DAFs, since most don’t have the same experience and expertise that I do in that area. I enjoy working with CPAs to help benevolent people like you realize their giving potential.
Call my office today at (626) 529-8347 or email me directly at ricky@hbawealth.com if you would like to discuss how a donor advised fund could help you make the world a better place.
About Haydel, Biel & Associates
Haydel, Biel & Associates, an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.