So this month, we are going to focus our blog posts on the topic of giving. Checks and direct deposits to your favorite charitable causes have long been primary giving methods. This still works, and yet other tools have been created to help people give more strategically as well as generously.
One of those tools is called a donor advised fund. This allows for several advantages and charitable gifting.
The first advantage is the streamlining of tax receipts. Rather than giving to multiple charities from your checking account and collecting multiple deductible receipts at the end of the year, you can give it to your donor advised fund which then grants to these charities, leaving you with a single tax deductible receipt.
The second advantage is particularly useful for entrepreneurs, whose income is sometimes seasonal and often fluctuates. If it looks like one year is going to be higher in income than another, this year may be a more tax advantaged year in which to take charitable deductions. So our clients will make two years’ worth of charitable contributions into their donor advised fund in the higher income year. The donor advised fund subsequently grants funds to the respective charities over the ensuing two years. Tax Deduction in the high income year, charity funding remains constant.
Another advantage of a donor advised fund is that the donor can retain some influence in the distribution of the funds. Obviously the operative word in a donor advised fund is “advised”: there is a reason these are not called donor controlled funds. But, charitable institutions that operate these funds can accept advice from the donors. So rather than writing one large check to an institution, some of our client families choose to reserve some of those funds for future grants so long as the charities they support stay on mission.
As with anything that has tax implications we encourage you to seek advice of your tax accountant before pursuing these options, and if you are one of our clients we have probably already done that together. But if you have questions about this or any other financial planning strategy, we invite you to connect with us. We love helping our clients advance the causes of the charities that they love.
Any opinions are those of Tim Weddle and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.