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Charitable Contributions Through the Use of a Donor Advised Fund

  • September 2019 | by Abbott Pratt & Associates

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    A donor advised fund is a simple and potentially tax-advantageous way to donate to your favorite charities. The new tax law has effectively doubled the standard deduction, making it difficult for many individuals to capture any tax benefit to their charitable giving due to the new $10,000 cap on state and local taxes paid making it difficult for taxpayers to take advantage of itemizing their deductions.

    One strategy is to “bunch” your charitable donations that you would have made over a few years into a single year, and placing that contribution into a donor advised fund.  By doing so you receive an immediate tax deduction for the amount placed into the fund regardless of when you release funds to a charity.  This larger donation may allow you to itemize your deductions instead of taking the standard deduction ($12,200 for Single taxpayers, $24,400 for Married Filling Joint for 2019).

    The donor advised fund works similar to an investment account.  Your tax donations are invested and grow tax-free. You can make your donations directly from the fund whenever you chose so, if you are unsure of which charity you would like to donate to, you can allow your funds to grow and make a donation to a qualified charity at a later date.  Note that donations from donor advised funds are only allowed to go to eligible IRS qualified 501(c)(3) public charities

    This can be a great option in a year of high expected market returns, receipt of an inheritance or in the year that you are selling a business as a way to help reduce your taxable income by maximizing your itemized deductions while still donating to the charities you love.

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