Talking taxes and giving through a donor-advised fund
If you give to several nonprofit organizations throughout the year, you may find tracking down your donations is cumbersome. Nonprofits use different giving methods and platforms – some will send you a printed receipt, while others will email you a statement you must log in to retrieve. Long story short, it can be a complicated process to document all of your giving for tax purposes and it’s easy to miss a gift that could impact your taxable income. Donor-advised funds allow you to give freely without worrying about the tax headache. Here is how the process works.
Giving into a donor-advised fund is a streamlined tax process.
Putting money into a donor-advised fun is considered a charitable gift for that calendar year. This is because you cannot use funds from a DAF for anything other than philanthropy. If you do all of your giving through a donor-advised fund, you only have to track investments into that fund for your taxes. The tracking stops there! Every grant you make from your fund does not have to be calculated into your taxes because the initial gift into your donor-advised fund matters. Even if you put money into your fund multiple times in a calendar year, you only have to go to the organization that administers your fund for your tax documentation. It’s a much simpler process if you give to multiple organizations.
Your gift appreciates tax-free.
Every dollar you place in a donor-advised fund can be deducted from your taxes. But as an added bonus, the funds you pour into your DAF can grow tax-free until you grant them to a nonprofit. It is one of the only ways you can invest your money and increase your impact without creating tax implications. This is especially helpful if you have a large sum of money you don’t want to bestow upon an organization in a lump sum. You can put it into a donor-advised fund and watch it grow until you’re ready to give it to organizations you love.
Tax efficiency doesn’t negate your giving spirit.
Taxes and generosity don’t seem like topics that go hand-in-hand. But through a donor-advised fund, you can become a strategic giver who balances tax efficiency and heartfelt generosity. You might find that you’re more willing to give to many organizations because you don’t have to track down every donation you make in a year when you give through a donor-advised fund. Being tax-conscious and generous can, and often do, coexist!
We’re not individual tax experts, but we do know many of our givers appreciate the personal tax benefits they receive from investing through a donor-advised fund. Talk with your trusted financial advisory about the right giving and tax strategy for you. If you want to learn more about giving through a donor-advised fund, whether for tax purposes or otherwise, connect with our team.