DAFs Help You Manage the Timing of Your Giving
One of the key benefits of a DAF is that it allows you to make charitable contributions and take a tax deduction in the same year, even if you don’t have a specific charity in mind to receive the funds. This can be helpful for managing the timing of your giving, as you can make large donations to your DAF in a year when you have a high income or tax liability, and then recommend grants from the DAF to specific charities in later years when you may have a lower income or tax liability.
Additionally, since you can recommend grants from your DAF at any time, you can use it to time your giving to match the needs of the organizations you support. For example, if a charity you support has a major fundraising campaign or a specific project they are working on, you can use your DAF to make a grant to them at a time when your support would be most impactful.
Significant Tax Benefits
A DAF can be a very powerful tool for maximizing the impact of your charitable giving while also enjoying significant tax benefits.
Immediate Tax Deductions:
Each time you contribute to your DAF, you can take an immediate tax deduction for the full fair market value of the assets donated. These tax benefits are available in the year the contribution was made, even if you do not recommend grants from your DAF until a later year. The deduction can be up to 60% of your adjusted gross income (AGI) for cash donations and up to 30% of your AGI for appreciated assets—such as stocks, bonds, or real estate.
No Capital Gains Taxes:
You can contribute appreciated assets, such as stocks, to a DAF and avoid paying capital gains taxes on the appreciation. This can result in significant tax savings compared to selling the assets and then donating the profits to charity. For example, let’s say you purchased 1 share of a company’s stock for $100 several years ago, and the stock has since appreciated in value to $200. If you sell the stock and plan on using the profit to make a traditional donation to charity, you will first have to pay at least 20% in capital gains taxes on the $100 profit from that stock sale.
Instead of selling the stock and paying those capital gains taxes, you could donate that share to a DAF instead. The DAF can hold that stock and watch it grow until you are ready for the contribution to take place. When you are ready, the DAF liquidates that stock and makes the donation to a charity of your choice…but this time you will have zero capital gains tax to pay when that stock is sold!