Could a Donor-Advised Fund Save You Money on Taxes?
By Jake Withnell, CFP®
Can you think of one person who doesn’t want to minimize their taxes and be generous at the same time? Neither can I. Donor-advised funds could be a great option to not only lower your taxable income, but also add structure to your giving, providing you with the potential to make a larger impact for the causes you care about.
Charitable Giving Under The Tax Cuts and Jobs Act (TCJA)
If you’re charitably inclined, you’re probably used to itemizing your deductions. However, with the increased standard deduction and the limit on deductions for state and local taxes, you may not have received as much of a tax benefit for your giving in the past few years since the TCJA went into effect in 2017 as you have previously. Essentially, your benefit for giving to charity has now been reduced by more than 30%. (1)
What Is a Donor-Advised Fund?
This is why donor-advised funds (DAF) are gaining popularity. A DAF acts as a philanthropic savings account. You put money into it for the purpose of giving to charity and let it sit there until you are ready to give. Unlike a savings account, though, all contributions are irrevocable. Once you put an asset into a DAF, you can’t take it back.
Because you can’t take back your contributions, they are considered complete charitable gifts and immediately tax-deductible. You can take the tax deduction right away even if you wait several years to pass the money on to charity. Though you don’t technically retain ownership when you put money or assets into a DAF, you are still able to guide, request, and recommend where the money goes. You get to name your DAF account, advisors, successors, and beneficiaries, and the holder of the DAF makes the ultimate decision on where the funds go. If you’re worried about letting control of your money go, know that most DAF holders will honor donor wishes as long as the recommendation complies with legal and tax requirements and grant-making policies.
Tax Benefits of a Donor-Advised Fund
DAFs offer several tax benefits. First, you get to take an immediate 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’re 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’s 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 gross income (AGI). For all other contributions, including cash, you can deduct up to 60% of your AGI. If your contributions exceed your deductible limit, you can carry them forward to the next tax year. (2)
Also, once a DAF has been funded, an investment strategy can be implemented to match your giving schedule. Finally, 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.
A Unique Opportunity for Nike Employees
If you’re a Nike employee, you have the opportunity to maximize your giving even further. Through their Give Your Best program, Nike will match employee donations dollar for dollar up to $25,000 per year, per employee. The best part is, you can use a DAF to take advantage of Nike’s generosity, doubling your gift and saving on taxes at the same time.
Are You Ready to Save Money With a Donor-Advised Fund?
We at JGP Wealth Management know that generosity is important to you and we’d love to help you make an impact on our world. We collaborate with other strategic partners, such as tax planners, to help you reach your goals and create a plan that makes sense for you. If you want to see if a DAF is the right fit for your goals, reach out to me at 503-446-6450, email jwithnell@jgpwealth.com, or schedule an introductory phone call online.
About Jake
Jake Withnell is a financial advisor at JGP Wealth Management, an independent, fee-based financial advisory firm in Portland, Oregon. Jake is known for going the extra mile for his clients and for his passion for working tirelessly to help his clients find solutions to their financial concerns so they can confidently live out the life they want. He prioritizes listening and understanding as the foundation of his relationships with his clients, and his highest hope is that they can spend more of their time and energy on their passions knowing he is watching over their financial future. Jake specializes in serving business owners, Nike executives, and retirees, and plays a key role in JGP’s portfolio management process, building and analyzing financial models, and conducting client cash flow analyses.
Jake graduated from Eastern Washington University with a bachelor’s degree in professional accounting and finance. He is a Certified Public Accountant (CPA) and a CERTIFIED FINANCIAL PLANNER™ professional. Jake’s claim to fame is his time playing tight end for the Eastern Washington University Eagles, all while earning four-time Big Sky Conference First Team All-Academic honors! Jake values giving back to his community and does this by volunteering with the Children’s Cancer Association, Family Building Blocks, and New Avenues for Youth. In his free time, Jake takes advantage of the many outdoor activities the Northwest has to offer, such as trail running, mountain biking, and hiking. He loves traveling and spending long weekends at his family beach house in Seaside, OR. To learn more about Jake, connect with him on LinkedIn. You can also watch his latest webinar, 6 Ways to Maximize Your Nike Employee Benefits._______________
(1) https://www.taxpolicycenter.org/briefing-book/how-did-tcja-affect-incentives-charitable-giving
(2) https://www.schwabcharitable.org/non-cash-assets/public-traded-securities