Do you make annual gifts to charities? If you like to make gifts to charities but don’t always get the benefit of a tax deduction, you might consider a donor-advised fund. This post helps you decide when to use a donor-advised fund.
What is a Donor Advised Fund?
According to NPTrust.com, a donor-advised fund is a giving account established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time.
Below are some examples of questions you might have that could lead to using a donor-advised fund.
Do you give annually and typically claim a standard deduction?
If you give regularly but still claim the standard deduction, you might consider bunching your charitable contributions into certain tax years to allow for itemization in that year.
Do you make regular charitable contributions and have a large tax liability coming up?
If so, bunching your contributions into the year of your large tax liability might reduce your tax bill.
Do you have highly appreciated stock that could bump you into an unwanted tax bracket, but need to rebalance?
Donating highly appreciated stock in kind to a donor-advised fund allows you to transfer the full market value without realizing the taxable gains. It might also allow you to rebalance without having to donate the funds right away.
Takeaway
We all have our reasons for giving. Whether you want to support your favorite charities, institutions, churches, or organizations, a donor-advised fund may be the way to go. If you give regularly and don’t always get a deduction, or if you have a large tax bill due, talk to a fee-only Certified Financial Planner® about using a donor-advised fund.
