A Donor Advised Fund (DAF) is a flexible vehicle for making a charitable contribution to your favorite causes while aiding you in your tax planning. It is essentially an effective tool to gift to your favorite causes while doing so in a way that financially benefits you.
Identifying a Cause
Not all donors have existing ties to a particular organization or cause, they simply know they would like to give back. Establishing a DAF does not require knowing who the beneficiary will be or when you would like to make your contribution, those key details can be determined at a later time. Looking into a DAF still makes sense at this stage of the game as you can plan for your long-term charitable intentions now.
While the primary motive for making charitable contributions both big and small is altruistic, an added benefit is financially related. Your donation, whether it’s a cash donation or a donation of appreciated stock, presents a charitable deduction opportunity in the year the contribution is made. Even if you don’t intend to gift the money for many years down the road, you can benefit from the full charitable deduction in the year that you’ve planned for it. Essentially, a DAF will offer you the benefit of fund growth and a tax deduction while giving you the time to find and research charities you wish to donate to at a later time.
Reducing Tax Liability
There is no doubt that a DAF can be an effective way to reduce your tax liability. It can be particularly useful in a high-income year. A DAF is one tool to explore to reduce taxable income and thus reduce tax liability.
Establishing a DAF not only helps you accomplish your long-term charitable giving goals, it can also help limit your tax liability. Reach out to the Metroplex Wealth team to learn more about DAFs.