CHARITABLE GIVING

Looking to Maximize Tax Deductions? Consider Bundling Charitable Gifts With a Donor Advised Fund

10.18.2018

In today’s tax environment, your charitable gifts may or may not be deductible on your tax return, depending on your ability to itemize in a given year. This Insights explains how taxpayers can use Donor Advised Funds to help make donations more tax-efficient.

Make Your Charitable Donations Count on Your Tax Return

Charitable donations are deductible only if you itemize, which may be a less likely scenario for many taxpayers given today’s higher standard deduction ($12,000 for individuals and $24,000 for married couples). If you find yourself short on itemized deductions, consider consolidating a few years’ worth of charitable donations into a single year to help cross the standard deduction threshold.

For example, consider a married couple that donates $10,000 to charity each year. This $10,000 donation will not create an additional tax benefit if their total deductions do not exceed the standard amount. However, by saving up several years’ worth of donations and making a bigger donation in a single year, they can itemize in that year and receive a tax benefit for their donation.

Consider Bundling Donations, Even If You Are Already Itemizing

Making a larger donation in a single year versus spreading smaller donations across several years can be worthwhile from a tax perspective, even if you are already able to itemize. That’s because only the amount you itemize that’s above the standard deduction makes a difference; anything below goes to ‘waste’ since you would have deducted up to that amount anyway.

Bundling your donations into a single year allows you to take full advantage of the ‘free’ standard deduction amounts in other years, while more fully benefitting from your itemized deductions in the year you take them. 

An important caveat: You may only deduct donations up to 60% of your adjusted gross income if you are donating cash, and up to 30% if you are donating securities.

Bundling Contributions in a Donor Advised Fund Offers Flexibility

Generally, bundling your donations provides the same tax benefits whether you donate directly to charity or donate using a Donor Advised Fund. You can claim a tax deduction for the full amount, up to 60% of your AGI for cash contributions, in the year the donation is made.

If you donate appreciated securities instead of cash, you’ll also be able to deduct the full market value, up to 30% of your AGI, and avoid capital gains taxes. Gifting securities also removes those assets from your taxable estate, and because charities are tax-exempt, they receive 100% of your gift.

However, Donor Advised Funds offer a level of flexibility that is not available when you give directly. They allow you to put money aside for charity today and choose the charity sometime in the future. This way you can receive immediate tax benefits while you decide which organizations you will eventually support.

Donate Appreciated Assets to Help Mitigate Capital Gains Tax

Donor Advised Funds generally accept a much broader variety of assets than charities accept directly. Acceptable donations usually include public and privately held securities, employer stock, personal property such as real estate and art collections, and certain business equipment.

If you donate appreciated securities instead of cash, you’ll be able to deduct the full market value, up to 30% of your AGI, and avoid capital gains taxes.

Making Philanthropy a Family Affair

Donor Advised Funds give you the freedom to donate as privately or publicly as you prefer. For example, families that want to protect their privacy can make grants anonymously. On the other hand, families that want to celebrate the gift publicly can make the donation in the family’s name or in honor of a friend or individual family member.

Whichever path you choose, Donor Advised Funds can provide you with a convenient way to engage your family in philanthropy. You may involve your children or grandchildren in grant decisions as “successor advisors,” which gives them authority to recommend grant recipients. In turn, they can name additional advisors and successor advisors, possibly carrying on your mission for generations to come.

How and When to Make Donations to a Donor Advised Fund

Contributions to Donor Advised Funds are irrevocable, so it is important to coordinate your gifting strategy with your overall tax and estate planning advisors. They also carry modest administrative fees, typically based on your account balance. The fee scale for the Fiduciary Trust Charitable Giving Program ranges from 0.75% to 0.35% of assets annually.

In addition to optimizing itemized deductions, consider timing your donations in years you are facing an unusually large income tax bill due to the sale of a business or other influx of income. You may also want to contribute amounts that may be too large to donate directly to any one charity, take an immediate tax deduction, and find several charities to support in the future.

Deadlines for opening a new account or making year-end contributions to an existing account are established by the sponsoring organization. Generally, they depend largely on the assets you contribute. Cash is quickest and easiest—some Donor Advised Funds allow contributions up until the last business day of the year—while some mutual funds can take as long as six weeks to process.

The sooner you start the process, the better your odds of reaping their full rewards when tax time arrives.


For more information about Donor Advised Funds, including the Fiduciary Trust Charitable Giving Program, please contact your relationship manager or call us at 877-384-1111
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This communication is intended solely to provide general information. The information and opinions stated are as of October 18, 2018 and may change without notice. The information and opinions do not represent a complete analysis of every material fact. 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.

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