Donor Advised Funds a great way to give and save on taxes
During the past 22 months, charitable giving has literally held communities together across the country and the world. Locally, it was the network of community services, like the Community Crisis Response Fund grants offered through the Community Foundation of Anne Arundel County, that ensured county residents survived and thrived.
At the Community Foundation, we continue to work with charitable community members as they share their time, resources and financial support to make a difference. And we thank everyone who remains committed to helping our neighbors.
One of the important ways that people can fully participate during this season of giving is by supporting their favorite causes through a charitable contribution before the end of this year. For some, it can be hard to know which organizations to support. If you aren’t sure where to give, start with your heart. What causes and programs inspire you? Where do you give your time? What organizations have friends and family recommended? Do specific organizations align with your passions, interests and values?
Thinking through these questions can lead you to a clear decision about the causes that matter most to you.
Donations made before Dec. ember 31 count toward the 2021 tax year, providing the extra benefit of reducing taxable income. It’s a win-win for everyone.
One way to fulfill charitable goals and save on taxes this year is to consider opening a Donor Advised Fund through a public charity such as the Community Foundation. Opening or contributing to an existing DAF allows donors to make a charitable contribution, even if they are not ready to select a specific charity right away, and still receive an immediate tax deduction.
Contributions into a Donor Advised Fun are invested and grow tax free, allowing donors to ultimately provide more dollars to their favorite causes. The funds give donors the flexibility to spread out giving over time, eliminating the rush of making charitable decisions based solely on tax advantages. Fund holders simply contribute into their fund when it is most tax advantageous to them, making grants to their favorite nonprofits from their fund on their preferred timetable.
Donor Advised Funds have been around for nearly 90 years, and their popularity grew in the 1990s. Today, more than one million accounts hold nearly $160 billion in charitable assets, according to the National Philanthropic Trust 2021 DAF Report.* In 2020, the value of grants from Donor Advised Fund accounts to qualified charities totaled $34.67 billion, a 27.0% increase from 2019. In short, the funds have become popular because of their flexibility, allowing people to donate when, where and how they want to give.
Other Benefits of Donor Advised Funds
A Donor Advised Fund provides options for contributing beyond giving cash, including giving stock, securities, cryptocurrencies and certain complex assets such as real estate. Donating appreciated stock is mutually beneficial: Donors can avoid paying capital gains tax and the charity receives the full value of the stock. Donations of stock are also tax deductible if the donor itemizes deductions on their federal income tax. Plus, when donating stock to a charity, the donor’s dollar goes further than if they sell the stock and donate cash.
Donor Advised Funds can provide a good way to begin working charitable contributions into estate planning. Donors can name their children, other family members or friends as successor advisors, establishing parameters for giving in perpetuity by converting a Donor Advised Fund into an endowed fund.
These funds also are a great option for individuals and families considering opening their own charitable foundation. They can save substantially on time and money as well as on the paperwork and reporting involved with establishing a private foundation. Donors can personalize the name of their fund or remain anonymous, and once a Donor Advised Fund is opened, the Community Foundation handles all due diligence and reporting requirements, allowing fund holders the joy of being able to make grant recommendations easily. As their interests change, they can partner with professional philanthropic advisors on staff to support their charitable decision-making process.
Finally, opening a Donor Advised Fund takes relatively little time, which is especially important when trying to make a year-end gift. If you have questions or want to learn more, visit cfaac.org or call 410-280-1102.