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What if I told you that you can have your cake and share it with others? Ok, ok… in this example you have to give out some of your cake in order to keep some. If you’re reading this post, I’m assuming that you are a charitable-minded person who ultimately wants to help others. Why not receive a tax benefit for doing good? I’m here to tell you about a key charitable giving strategy. Introducing: The Donor Advised Fund. This is a great way to fulfill your philanthropic goals and also strategize to save on taxes.
When you contribute to a Donor Advised Fund , you receive a tax deduction in that year. You may be thinking “I contribute to charity every year but I’m not able to itemize my deductions”. This is the case for many Americans after the recent tax law changes from the passage of the Tax Cuts and Jobs Act. Here’s where strategy comes into play:
One strategy is to front-load a large contribution into the Donor Advised Fund in one year. For example, you can contribute an amount equal to what you would donate to charity over a period of several years (keep in mind, however, the minimum initial contribution is $5,000). If the donation is large enough, you will benefit from larger Itemized Deductions in that year. In addition, this is a great strategy to reduce your tax burden in a large income year such as when you receive a large bonus, sell a business, or realize gains from property or an investment.
Another strategy is to donate highly appreciated stock of a publicly-traded company. If the stock has been held for more than 1 year, you can claim a deduction for the fair market value of that stock. In addition, this would not only save you from paying capital gains tax but also potentially save you from paying net investment income tax on the gains as well.
Additional Benefits of a Donor Advised Fund:
The great thing about a Donor Advised Fund is that you are not required to distribute the entire amount to charities in that same year. If you donate three years’ worth of contributions into the Donor Advised Fund in one year. You can then spread out your donations to the qualified charities of your choice over a three year period.
In addition, another advantage is that the Donor Advised Fund grows tax-deferred. That’s right, you won’t have to pay taxes on any growth or income from investing the assets in your Donor Advised Fund! Many people also use the Donor Advised Fund as a vehicle for estate planning. Any contributions you make into the Donor Advised Fund are no longer part of your estate and would therefore not be subject to estate taxes. If you’re looking to leave a legacy of charitable giving to your heirs, the Donor Advised Fund is a great way to get the whole family involved in helping others. Many families enjoy letting their children or grandchildren be involved in the decision-making process to instill a charitable mindset for generations to come.
In conclusion, any time you make a donation to charity, you are working to help others. We can help you do this in the most efficient way possible. Call us today for a free consultation to see if a Donor Advised Fund is right for you!