Year-end Planning With a Donor Advised Fund

When Congress increased the standard deduction for joint taxpayers in 2018, it made it much harder for joint taxpayers to deduct charitable contributions.  For 2022, the total of itemized deductions would have to exceed $25,900 to provide a tax benefit greater than the standard deduction provides.  One way to get over that limit is to make enough charitable contributions to ensure that you can itemize.  But, what if you don’t want to give that large of an amount to an organization all in one year?  That’s where a donor-advised fund comes in handy. 

Donor Advised Funds 

While a donor-advised fund (DAF) sounds like something only the rich and famous would care about, in reality, it’s an excellent tool for those who could benefit from making a tax-deductible charitable contribution, but don’t want to designate who it’s for right now.  A DAF is a special non-profit organization that can accept charitable contributions and holds them until you are ready to designate who should ultimately receive the money and when the funds should be paid out.  The donor receives a charitable contribution deduction in the year the money is put into the DAF as opposed to when the funds are ultimately distributed.   

For instance, if you typically make $5,000 per year in donations, but this year you need to contribute $25,000 in order to be able to itemize and offset taxable income, you can contribute $25,000 to the DAF, which will give you a current-year tax deduction.  Then you can designate later who gets the money and how much is given.  

Schwab and Fidelity are two organizations among others that have a donor-advised fund already set up.  To make a contribution, you will need to open an account and then make your contribution.  Your contribution can be in cash or in securities.  Both of these funds not only allow you to designate a charity at a later date but also provide options to allow you to invest the funds until you distributed them if you desire. 

Qualified Charitable Distributions  

Cash contributions are deductible up to 60% of your adjusted gross income, and donations of securities held over one year are subject to a 30% limit.  Unfortunately, you cannot use a DAF in conjunction with a qualified charitable distribution from your IRA. 

If you want to take advantage of this for 2022, you should get started right away to make sure you can get this done before 2023.  Please contact your DWD accountant if you have any questions. 

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Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.