Today's Tax Laws Make Bundling Charitable Gifts Attractive


Donor advised funds can offer powerful tax benefits, especially under today's tax laws. 

The high standard deduction and the elimination of many other itemized deductions means it's a higher bar in order to itemize deductions. Taxpayers receive an additional deduction for their charitable gifts only if their total itemized deductions exceed their standard deduction amount ($12,400 for single filers, $24,800 if married filing jointly in 2020).

Donor Advised Funds Can Help You Maximize Your Tax Deductions
Bundling charitable gifts into a single tax year may provide a way for donors to benefit from their contributions. 

For example, if you are married filing jointly and typically contribute $6,000 to a charitable organization each year, your total itemized deductions may fall short of the $24,400 standard deduction. That means your $6,000 annual gift would not change your deduction amount. However, if you bundle contributions by giving $30,000 once every five years, your itemized deductions will exceed the standard for that that year, allowing you to benefit from a deduction for your gift. You can only contribute amounts up to the adjusted gross income limit in any given year, but any excess can be carried forward and deducted for five additional years after the year of the original contribution. 

Donor Advised Funds are a convenient way to bundle your contributions into a single year, enabling you to exceed the standard deduction threshold and therefore benefit from a tax deduction on these gifts. Because Donor Advised Funds allow you to put money aside for charity today and distribute it to charitable organizations sometime in the future, they can be a great tool for making a larger contribution now without the pressure of needing to select a charity immediately.

Donate Now, Choose a Recipient Later

Donor Advised Funds are not subject to minimum distributions offer the additional benefit of giving you plenty of time to decide, because they are not subject to minimum annual distribution requirements. On average, donor advised funds distribute roughly 18% to 22% of their assets to charitable organizations each year. Grants can be awarded in your name, the name of another individual or anonymously.

Avoiding the Pain of Capital Gains

Donors may receive an immediate tax deduction when they make a charitable contribution to a donor advised fund—up to 60% of your adjusted gross income for cash and 30% for securities. If those assets have appreciated in value since you acquired them and you have owned them for more than a year, your portfolio manager might recommend contributing them to a donor advised fund so your accountant can deduct the fair market value from your income taxes and you can avoid capital gains taxes. 

Is a Donor Advised Fund Right for You?

There are several important caveats associated with Donor Advised Funds. While the donor enjoys the ability to recommend grant recipients, grant decisions are approved by the organization that sponsors the fund. If you create a donor advised fund you can also involve your family in your philanthropy efforts by naming one or more of your relatives as successor advisors, giving them authority to make contributions, recommend grants and name other advisors and successor advisors when you pass away. Gifts are irrevocable and carry modest administrative fees.

A Donor Advised Fund Might be Appropriate if You… 

  • Make large gifts to charity each year
  • Own appreciated assets
  • Have concentrated positions in your portfolio
  • Are in a high tax bracket 
  • Aren’t sure which charities to support 
  • Prefer to spread gifts over time  
  • Want to leave a legacy 
  • Are subject to estate taxes 
  • Don’t want to handle administrative responsibilities and recordkeeping

You Can Contribute Assets Such as…

  • Cash
  • Most securities
  • Closely-held businesses
  • Employer stock in a qualified plan
  • ESOP qualified replacement property
  • Personal property (although calculating allowable deductions can be complex)
  • Business and farm equipment
  • 457a repatriated assets 

A Donor Advised Fund is Not Appropriate for… 

  • Generating income for you or your family
  • Transferring wealth to heirs
  • Fundraising
  • Meeting a personal, binding pledge to charity
  • Making quick, one-time gifts to charity

This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process.Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.


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