In our January blog post, “New Tax Strategies” we outlined how taxpayers can bunch their deductions into a tax year in order to get enough deductions to itemize. Donor advised funds will become an important vehicle to implement these strategies for many people that are charitably inclined.
Most people opt to do their charitable giving on an ongoing basis while some set up large foundations that may pay out income to charities for decades to come. Foundations require legal set up costs, annual tax filings and other expenses that make them impractical for most donors.
A donor advised fund is an account set up for charitable giving, typically over a period of years. It allows you to take a deduction in one year for donations that may be made over several years. With the tax law changes, it can help ensure that your charitable donations are tax deductible.
In addition to cash, you can contribute appreciated securities like stock or mutual fund shares and avoid the capital gains tax, yet still deduct the full value of the contribution. The fund can be invested to generate gains that grow tax free and can provide additional support to your charities of choice.
Donor advised funds are offered by many investment firms including Fidelity, Schwab and Raymond James as well as some local community foundations. At Vintage, we’re happy to help our clients determine if these funds make sense from a tax standpoint and then recommend a provider that fits with their objectives. There’s typically no fee for our help in this area. It offers us a way to give back to worthy charitable organizations and help our client’s donations go further.