Optimizing Giving Strategy: Donor-Advised Funds
by Michaela Sullivan, CCS board member
I’ve been a huge fan of the Cat Care Society ever since I visited for the first time almost a decade ago. CCS has been one of my favorite places to donate to. I don’t know of a single shelter that comes close to providing the level of comfort and care for homeless cats that CCS does.
I work in finance and am very passionate about tax planning because I know what a huge difference it can make for someone’s bottom line. I have found that my favorite way to donate to CCS is through my Donor-Advised Fund (DAF). But what is DAF, anyway?
A DAF is an investment account for charitable giving. I can donate cash, appreciated stock and even illiquid investments in some cases. I don’t have to pay taxes on the gains for anything I contribute and receive an immediate charitable deduction.
I can select how I want my DAF invested and make grants to charities any time (now or into the future). Being able to take control of when I get my deductions has been crucial to optimizing my tax situation while supporting the organizations I care about the most. With the standard deduction now being so large, many people are bundling multiple years of donations into their DAF in one year while switching off between itemizing and taking the standard deduction. This is extremely helpful from a tax standpoint because if they did smaller donations each year instead, they may not even be getting a tax benefit at all.
I recently had a client sell their business, which resulted in millions of dollars in capital gains. They were able to make a substantial contribution to their DAF (estimating it would be enough to fund their donations for the next 10-15 years) and they were able to cut their tax bill by about $40k. Not only that, but they donated appreciated stock with over a 2,000% gain that they did not have to pay taxes on.
A donor advised fund can certainly be a great tool for tax planning, but that isn’t the only thing I love about it. It is also extremely easy to give and track because the financial institution holding the DAF does all the administration. When I want to donate, I can do it in a matter of minutes by logging into my account and searching for the organization I want to donate to. The organization will receive a check and a letter from my DAF. I can customize the letter by adding a note for where I want the funds allocated. The financial institution tracks everything for me. I can see information about my DAF contributions as well as my grants to charities and even when the checks were cashed.
I am so happy I have such an easy and tax-efficient way to give to my favorite cause, CATS!
Interested in expanding your philanthropic giving by setting up your own DAF? Contact our director of philanthropy at firstname.lastname@example.org for help or connect with your financial institution or tax advisor! And, find more ways to give on our website.