Irvine • Dallas

Gifting, for many investors, is about the philanthropic support they want to give charities. Gifting to help make the world better by benefitting society is one reason many families choose to donate. The charitable giving tax deduction they received in the past was a bonus. The above-the-line deduction for charitable giving is $300 per calendar year per individual under the CARES Act. For some investors, a $300 per year deduction doesn’t reflect in tax savings of their substantial donations.

However, there is a solution to the tax benefits of giving through Donor-Advised Funds (DAF).  Donor-Advised Funds allow individuals gifting to bunch more substantial contributions together instead of making yearly contributions, helping to push their itemized deductions above the standard deduction level.  Some features of DAFs:

  • Most, or all, of the DAF contribution, is tax-deductible when funded at the account opening.
  • The DAF doesn’t need to indicate the charity.
  • The DAF allows multiple charities to benefit, not just one, as required when setting up a foundation.
  • If invested effectively, the funds can grow tax-free, resulting in considerable donations later.
  • Donations from the fund are considered gifts to a charity or multiple charities.
  • To use the contribution as a deduction for your previous year’s tax filing, the DAF must be set up and funded by December 31st of the year you wish to start giving- and benefiting from the deduction.

For investors that plan to continue to donate, DAFs ensure a tax benefit and a human benefit. A DAF is a strategy to gift in any amount you choose.

Clients over age 70 ½ can contribute from their IRAs, up to $100,000 per year, to charity. DAFs can satisfy the required minimum distribution (RMD) from IRAs but can’t accept contributions from a 401(k) account.  The IRS has guidelines on DAFs or consult your tax professional for the latest changes.

If you have questions on DAFs and how they may fit into your wealth management and charitable giving plan, now is a great time to meet with your financial and tax professionals if you plan to use your DAF contribution as a tax-deduction for 2021.


Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

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