Most people know they want to make a difference in the lives of those around them and their community. The question is not so much, “Should I give?” but rather, “Where and how should I give?”
There’s nothing wrong with wanting to be strategic about your giving. After all, the right giving strategy can maximize the benefits you and the recipient organization receive.
Donor-advised funds (DAFs) are an easy and effective way to give generously. Here is how they differ from direct giving.
How Do Donor-Advised Funds Work?
Donor-advised funds are one of the fastest-growing charitable giving vehicles. DAFs are private funds administered by a public charity created solely to benefit the charitable organizations you care most about.
With a donor-advised fund, you have several donation options, including:
- Stocks held for at least one year
- Non-publicly traded assets (private business interests, cryptocurrency, or private company stock)
With these, you can directly support any IRS-qualified public charity.
Benefits of Donor-Advised Funds
Donor-advised funds have several benefits for both the donor and the recipient.
Any contribution to a DAF could be eligible for an immediate tax deduction. If you have a significant spike in income, you may be able to pre-fund your giving for the upcoming years. For example, if you received a large bonus or sold a property for a profit, you have the potential to fund your yearly charitable donations for several years.
If you donate appreciated stock, neither you nor the recipient pay taxes on the gain. Depending on the investment, the charity may hold onto the stock and sell at an even higher gain.
You can also incorporate a donor-advised fund into your legacy plan. You can leave a gift to a DAF sponsor or create a succession plan for your donor-advised fund to pass any remaining funds onto charities or heirs.
Donor-Advised Funds vs. Direct Giving
Direct giving can seem like the simplest way to give. Direct giving has the same income tax deduction limitations as a DAF (up to 60% of AGI for cash and up to 30% of AGI for appreciated assets), but unlike donor-advised funds, you are responsible for recording and reporting any direct charitable contributions to the IRS.
Any generosity is always greatly appreciated by charities, churches, and other organizations, but utilizing a donor-advised fund is an investment that allows you to maximize the benefits that your generosity brings.
Reach out to one of our advisors to learn more about leveraging your generous giving as part of your financial plan!