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Five Reasons You Should Open a Donor Advised Fund Before Year-End

tips for year-end giving

December is here, which means you’re likely thinking about steps you can take before year-end to optimize your 2019 tax benefits. If you're already giving to nonprofits and causes throughout our community, a donor advised fund is something you'll want to learn more about.

According to Mary Kolsrud, vice president for philanthropy, demand for donor advised funds, giving vehicles known for their convenience and flexibility, is on the rise.

“The advantages offered by donor advised funds are many, but most significant is this: Because donor advised funds are administered by the Community Foundation, you receive the full tax benefit when you contribute to the fund. For those wanting to optimize their 2019 tax benefits, or for those who find themselves in a financial windfall, either from the sale of a business, year-end bonus, or other situations, donor advised funds work well because they offer tax advantages and the flexibility to delay decisions on where to direct your charitable gifts in order to develop a more strategic and impactful strategy over time," she said.

In many ways, a donor advised fund operates a lot like a checking or savings account just for charity, Kolsrud said. They're popular because they allow an individual or family to make a tax-deductible contribution, then recommend grants to favorite charities from the fund when the time is right.

Working with the Sioux Falls Area Community Foundation, opening a donor advised fund is seamless and efficient — meaning you still have plenty of time to act before year-end. Learn more about our year-end deadlines.

Five Reasons Why You Should Consider a Donor Advised Fund

1. Income Tax Deduction

You’ll receive a charitable deduction from income in the year you contribute to your donor advised fund. You can deduct up to 60 percent of your adjusted gross income for cash contributions in the first year, with a five-year carry-forward for unused deductions.

2. Appreciated Assets

Gifting stock, farmland or other highly appreciated assets maximizes your tax advantage by allowing you to avoid capital gains. You can also use this deduction up to a limit of 30 percent of your adjusted gross income in the first year for capital gain property, with a five-year carry-forward for unused deductions.

The deduction for many non-cash assets are their full market value, not their low cost basis. This means a higher deduction for you and it could mean more dollars for your favorite charity, too.

3. Gift Planning Assistance

Another reason to open a donor advised fund: When you donate assets to your donor advised fund, whether during your life or as part of your will or trust, it removes the asset from your estate, lowering your taxable estate.

When it comes to non-cash assets, the Community Foundation can efficiently accept a variety of assets to either liquidate or hold as income-producing property.

Working in collaboration with you and your advisors, we can visit about accepting assets that are more advantageous, given your unique situation.

4. Bunching

If you already have a donor advised fund, you can utilize a smart-giving strategy called “Bunching.”

"Bunching" allows a donor to group, or bunch, several years’ worth of charitable donations into one contribution, pushing their itemized deductions above the new higher standard deduction amount for that year. Then, over subsequent years, standard deductions can be taken.

Essentially, you can give to your donor advised fund to pre-fund multiple years of future giving. Learn more about bunching.

5. Create a Legacy

We saved the most important reason for last.

A donor advised fund provides an opportunity to create your philanthropic legacy. The ability to name your fund and outline your philanthropic plan ensures your values and your family’s legacy will live on forever.

You choose the programs and organizations you are most passionate about. Need help deciding what to fund? We’re here to help every step of the way. Whether it’s researching nonprofit organizations, programs, or helping your kids and grandkids learn about giving back, we’re here to be a resource for you.

Additional Benefits of a Donor Advised Fund

  • It Makes the Complicated Un-Complicated: You can seamlessly donate non-cash assets including appreciated stock or other securities, real estate, agricultural assets and more.
  • Local Expertise: When you open a donor advised fund at the Community Foundation, you have the benefit of two teams working together on your behalf to help simply and maximize your giving. “Our Philanthropy team provides expertise in charitable strategy, endowments and legacy giving,” Kolsrud said. “At the same time, our Community Investment team provides insights and analysis on critical needs and areas of opportunity throughout the community.”
  • It Helps You Get Organized: “With your online donor portal, you have access to your giving history at your fingertips,” Kolsrud said. “There’s no more searching for your donation receipts ahead of tax time. And, it helps you keep track of the organizations you’ve supported in the past.”
  • You Can Give Back as a Family: A donor advised fund gives you the opportunity to share the causes that mean the most to you by allowing you the flexibility to involve family members in your giving decisions. “For many of our donors, involving their children in their charitable giving decisions is an opportunity to instill values on the importance of giving back. The Community Foundation also offers the opportunity to name a successor advisor — someone to carry on your legacy after your lifetime,” Kolsrud said.

Is a Donor Advised Fund Right for You?

Do you want to organize your giving, or create a way for your family to give together? Are you looking for ways to reduce your tax liabilities? Do you support multiple charities in one year? Are you are expecting a bonus or a high-income tax year? Do you wish you had more time to decide where to give before December 31? If any of these ring true, you might find a donor advised fund at the Community Foundation a helpful companion.

Want to find out more? Give us a call at 605.336.7055 or contact Mary Kolsrud, vice president, philanthropy.