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Discover the art of giving smartly with Donor Advised Funds. Learn how you can support your favorite charities while enjoying tax benefits in our latest article.
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Charitable Giving and Tax Benefits: Understanding Donor Advised Funds

Financial Planning
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As a firm dedicated to financial well-being and wealth management, we strive to present opportunities that align with your values and financial objectives. Let’s explore a tool that enables both charitable giving and tax efficiency: Donor Advised Funds (DAFs).

What is a Donor Advised Fund?

A Donor Advised Fund is a dedicated charitable investment account for the sole purpose of supporting charitable organizations you care about. Donors begin by establishing the DAF account at a public charity, like Schwab Charitable. The donor can then contribute cash or securities to the fund. An immediate tax benefit, subject to IRS limitations, is generally available in the year of the donation. Contributions made to the DAF can then be invested to grow tax-free within the DAF over time. Finally, at your discretion, you can recommend grants from the Donor Advised Fund to your preferred 501(c)(3) charity of your choosing.

Donor Advised Funds are the fastest-growing charitable giving vehicle in the United States1, primarily due to their ease of use and advantageous tax benefits. You can think of it as a charitable checkbook. Once established, simply log into your online Schwab portal and request a grant out of the account to your preferred charity with the click of a button.

Gifting Securities: A Double Benefit

In addition to cash, one of the most attractive features of a DAF is the ability to donate long-term held securities, including stocks, bonds, and mutual funds. This is where tax benefits truly shine for the strategic donor.

Donating appreciated securities to the DAF bypasses the capital gains tax that would otherwise be due if these securities were sold. Plus, you can claim the current market value, not the original cost basis, as a charitable deduction.

The key here, though, is to gift long-term held securities, those held for over one year. The IRS treats long-term and short-term capital gains differently, with long-term gains generally taxed at a lower rate. By donating securities held long-term, you maximize your tax benefits: avoiding capital gains tax and also receiving a deduction for the full fair market value. For short-term holdings, your deduction is limited to the lesser of fair market value or your cost basis, often diluting the tax benefit.

Here’s a scenario: Imagine you purchased a stock years ago for $10,000, which is now worth $30,000. By gifting this stock through a DAF, not only do you eliminate the capital gains tax on the $20,000 appreciation, but you also can claim the full $30,000 as a charitable deduction for tax purposes (generally). This is truly a win-win.

Benefits of Donor Advised Funds

The benefits of DAFs extend beyond tax advantages. Here are a few more reasons why they’re a popular charitable giving tool:

  1. Simplicity: DAFs are straightforward to set up and maintain. Schwab Charitable handles all the administrative responsibilities, freeing you to focus on the joy of giving.
  2. Flexibility: You can contribute to the fund as frequently as you like and recommend grants to your chosen charities on your own timeline. There’s no need to immediately recommend grants after contributing to the donor advised fund.
  3. Investment: A DAF can be invested for tax-free growth, amplifying your philanthropic impact.
  4. Impact: With a DAF, you can create an ongoing legacy of giving, turning today’s contributions into future grants for the causes you care about most. If you wish, you can assign successors of the DAF to encourage future family members to gift out of the DAF you established and helped grow.
  5. Privacy: If desired, you can choose to make grants anonymously.

By considering a Donor Advised Fund, you’re taking an important step towards merging your financial objectives with your desire to make a difference.  

If you’re interested in exploring the potential of Donor Advised Funds further, we’re here to help. Our dedicated team can provide guidance on establishing a DAF and offer advice on tax-efficient gifting strategies. Reach out to us today to continue this rewarding conversation.

 *It’s important to note that tax laws are complex and change frequently, so the information presented may not be current after June 2023. Prior to any contribution to a donor advised fund, it’s important to discuss your personal situation with your tax professional. The IRS imposes income limitations meaning that your total deduction for all charitable contributions in any tax year cannot exceed a certain percentage of your adjusted gross income.   

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Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

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Key Financial Terms 
Related to this Post:

This is some text inside of a div block.

Donor Advised Fund (DAF)

A Donor Advised Fund (DAF) is a charitable giving vehicle where donors contribute assets, receive an immediate tax deduction, and recommend grants to charities over time.
This is some text inside of a div block.

Stocks

Represent ownership in a company. Investors may profit from capital gains and dividends.
This is some text inside of a div block.

Tax Deduction

An expense subtracted from taxable income, reducing the amount of income subject to tax.

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Contact@brickleywealth.com
(650) 638-0111

Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

2020 Brickley Wealth Management. All rights reserved.
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