Support FACT and Maximize Your Impact with a Donor-Advised Fund

For individuals who are looking to support FACT’s mission to promote humane farming practices and access to safe and healthy food, and who are also charitably inclined and potentially looking for tax advantages, a Donor Advised Fund (DAF) may be a solution to consider. 

This week in the blog, we have a guest post from our friends at Christopher Street Financial to tell us more about this innovative solution.

Donor Advised Funds (DAFs)

A Donor-Advised Fund is an investment vehicle for giving to charities, such as FACT, in a way that is both strategic and which potentially creates tax-saving opportunities.

When you initially contribute assets to a DAF, your donation is complete for tax purposes. You will receive a tax deduction in the year of the contribution and carry over any unused portion to future tax years.

The assets you contribute are held and invested in the DAF until you are ready to direct them to the charities of your choice over however long a period. You have the flexibility to distribute grants to your chosen charities on your own timeline, essentially separating the timing of the gift from the tax deduction benefits.

A Donor-Advised Fund may be right for you, if:

• You are charitably inclined

• You have charities that you plan to support over time

• You are interested in reducing your current tax bill

• You have large, appreciated stock positions, and you would like to manage your capital gains

• You want to involve your family in charitable giving while creating a lasting legacy

How it works

Step 1: Establish a Donor Advised Fund

You can open a DAF through many major financial institutions or an independent DAF provider. Christopher Street Financial has years of experience establishing these accounts for clients.

Step 2: Contribute to Your Donor-Advised Fund

Though cash donations provide the largest tax deduction, DAFs allow individuals to donate multiple types of assets. This includes types of assets that may otherwise be difficult to liquidate.

Acceptable asset types could include:

• Stocks

• Real estate

• Cryptocurrency

By no means is this an exhaustive list. It does, however, demonstrate the ability of individuals to diversify the funding source of their donations, which in turn could potentially increase their charitable giving tax deductions. And you, as the Donor, receive a tax deduction in the year of donation.  

Step 3: Let the Money Grow

The assets you contribute to your DAF are invested, and growth is tax-free.  In addition, you are not required to donate those funds immediately, or even in the year you made the contribution. Instead, those funds may stay in the DAF and continue to grow over time until you are ready.

Step 4: Grant Money to the Charities of Your Choice

When you are ready, you, as the Donor, recommend grants directed to one or more charities of your choice. This could be part of your estate planning, allowing your family to direct grants many years in the future.  And unlike some other charitable structures, there are no required annual distributions. The only requirement for the grants is that the organization that ultimately receives the donation must be a 501(c)(3) or a public charity under a 509(a). Many organizations list their tax filing status on their websites.

Donor-Advised Funds Considerations

One of the most notable differences between a DAF and other investments is that the money in a DAF may not be returned to the donor. Once a donation is made, it can only be directed to charitable organizations. This requirement is key to receiving the tax opportunity in the year the assets are contributed to the DAF.

Tax Planning Opportunity #1: Offset Capital Gains Tax

When an investor sells stock at a gain, they may be subject to paying capital gains taxes. Depending on the size of the gain, this could represent a significant portion of the stock’s total value.  If you are looking for a way to offset potential capital gains tax, funding a DAF with appreciated stocks, which can be donated at their full value, may be an attractive option. This means that both the charity and the donor benefit. The charity receives a larger donation, and the donor receives a larger tax benefit. 

Tax Planning Opportunity #2: Simplified Reporting

Normally, if you donate to individual charities, you need to report each charity on your tax return for the year. Utilizing a DAF can simplify the process. With a DAF, you report earnings and withdrawals on a consolidated basis.

DAFs can also give you the opportunity to max out your charitable contributions. By consolidating your planned donations for many future years into a single, larger contribution to a DAF in one year, you can receive a deduction that may otherwise have been less than your permitted Standard Deduction. These tax savings could be passed on to the charities you ultimately decide to support.

This makes DAFs an enticing strategy for charitable individuals and tax-minded investors.

A Donor Advised Fund is a strategic option that comes with real tax-saving benefits for the donor and for those looking to support FACT’s mission to promote humane farming practices and provide access to safe and healthy food.  A win-win for the donor and FACT!