The Donor Advised Fund and other charitable donations are a great way to reduce the tax liability of a household.
The IRS imposes numerous rules covering deduction limits around this topic. An often misunderstood notion is that all of one’s charitable donations will be deductible. Based on the tax year, this isn’t always the case due to the standard deduction. For example, if an individual gives $1,000 to their church, but uses the standard deduction ($12,950 in 2022) on their tax return, the donation to the church doesn’t make a difference on their tax return – they’ll receive the same standard deduction regardless of their charitable donation. In essence, an individual (or married filing jointly family) would need to itemize their return in amounts greater than the standard deduction to benefit.
Welcome to the Donor Advised Fund
The Donor Advised Fund is a giving account that allows a taxpayer to essentially front-load or combine multiple years of planned charitable donations into a single tax year. Why? To group the amount of the gift to exceed the standard deduction to take full advantage of their giving strategy on their tax return. The Donor Advised Fund is, itself, established as a public charity and the gift to it accomplishes this goal. Grantors (the taxpayer gifting to the Donor Advised Fund) can then recommend grants from the Donor Advised Fund over time.
Donor Advised Funds can be used as a strategy tool for more than just philanthropic purposes. Subject to IRS imposed limitations1, one can gift:
- Low cost basis, highly appreciated stock
- Real Estate
- Privately-held stock
- Life Insurance Proceeds
- Retirement assets
- Restricted Stock Options
- Other asset types as well
Here at Coastal Wealth Advisors, we’ve teamed up with the American Endowment Foundation through TD Ameritrade to offer Donor Advised Funds to our clients. With current account minimum of $25,000, a Donor Advised Fund could be a unique strategy to help you accomplish your goals.
1We work with our clients’ certified tax advisors to determine the client-specific limitations