A great way to give comes with potential tax breaks


Anthony Engrassia


Business Columnist

Monday, November 26, 2018

Do you regularly donate to charities and other nonprofit organizations? Then you may want to open a donor-advised fund.

Donor-advised funds are becoming popular. It is easy to see why. They offer potential tax perks and in some instances a chance to grow money set aside for charitable gifting.

It is all too easy to think of charitable gifting in either very small or very large terms. Donor-advised funds represent a middle ground, a way for you to make significant gifts without having to deal with a private foundation’s paperwork and time commitment.

Financial institutions manage some of these accounts; others are overseen by community organizations. Donor-advised funds can be started with relatively small sums — a minimum of $5,000 is not unusual. Please note that contributions to donor-advised funds are irrevocable.

These funds offer you a tax break and a degree of flexibility. You can claim an immediate charitable tax deduction for the amount you direct into a donor-advised fund, and you advise the fund where the money should go. It can go to multiple charities, not just one.

You decide when you want donations to be made. You can go years without making any if you wish. You may make ongoing contributions to your donor-advised fund, and you can often choose to have the assets invested and professionally managed once the account balance hits a certain (high) level.

A donor-advised fund may even provide a triple tax break. Besides the upfront charitable deduction, there are two other opportunities for tax savings here. When you transfer highly appreciated securities into a donor-advised fund, you avoid the capital gains tax you would pay if you simply sold them — and that could mean saving thousands of dollars. In addition, those securities can benefit from tax-free growth once they are in the donor-advised fund.

Donor-advised funds also allow you to easily track your charitable gifting. Use one of these financial vehicles, and the assets you earmark for charity can be distributed from a single source.

Whether you routinely or occasionally donate to nonprofit organizations, a donor-advised fund is worth considering. It may give you a great way to do good.

Anthony Engrassia provides financial planning and investment advice through Prosperity Capital Advisors, an SEC-registered investment advisor.