- February 6, 2024
- Colton Owen
What is a Donor Advised Fund
With the start of a new year and tax season officially upon us, it’s only natural to look for advantageous gifting and tax planning strategies to implement.
One great option that helps to achieve charitable giving and tax savings goals is a Donor Advised Fund, or a DAF.
In simplistic terms, a Donor Advised Fund is a separate giving account that a client can open and contribute to. When you open a DAF, you can predetermine where you want your contributions to be donated to. The only stipulation is that they must be registered as a qualified 501(c)(3) organization.
Donor Advised Fund: Growth Benefits
A benefit of contributing to a DAF is that you can contribute money or assets (stocks, mutual funds, bonds, etc.). This enables you to donate to the DAF and allow the asset(s) to continue growing.
For example, a client contributes $10,000 worth of stock to the DAF with the goal of donating $2,500 a year of this stock to their charity of choice. However, because the stock is still held in the DAF, depending on the performance of the stock, the client could have the ability to gift the charity $2,500 plus any additional growth.
Donor Advised Fund: Tax Savings
Another benefit of DAFs is tax savings. When the client makes the gift to the Donor Advised Fund, they can make an itemized deduction for the amount they are giving. This can be helpful in high income years.
A scenario in which this would be beneficial to the client is if they were to receive a large bonus which results in their taxable income being more than expected. They can make a large donation to the Donor Advised Fund, deduct this amount from their income, and then make a customizable schedule to release a predetermined amount to the charity of choice for the current year and years following. This would allow the client to decrease their taxable income while achieving their philanthropic goals at the same time.
Furthermore, sometimes investors have stock positions that are highly appreciated and have been held for several years. By contributing these positions, or a portion of these positions, the client avoids having to realize gains that would result in a larger tax bill.
These charitable giving vehicles can be extremely beneficial. Give your financial advisor a call to determine if a Donor Advised Fund makes sense for you.
Concerns or questions about your financial plan? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate markets and developing custom financial plans. To learn more about our approach to financial planning please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
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