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3 Tax Benefits of Donor Advised Funds

One of the joys of managing our money well is that we are then able to give to those in need. That’s why we love donor-advised funds! Where financial advising and charitable giving meet, donor-advised funds are a great way to give back, while also receiving tax benefits. The contributions you make to a donor-advised fund are tax-deductible, grow tax-free, and allow you to support the causes and organizations that you feel passionately about. To illustrate how these funds can help reach your financial goals, here are three benefits of donor-advised funds.

What is a Donor Advised Fund (DAF)?

Think about a donor-advised fund as a charitable checking account. With a DAF, you can donate directly to your favorite charities in mere minutes. This is especially true when you have your fund set up online, as you can direct where your donation goes with just a few clicks. DAFs allow you to take an immediate tax deduction when making your investment (subject to income limitations). So, not only does a DAF provide you with an easy way to donate and keep track of your charitable giving, but it can also provide you with multiple tax benefits.

What Assets Can You Contribute to this Fund? 

You can contribute cash, cryptocurrency, stocks, bonds, mutual funds, restricted stock, life insurance, private S- and C-corp stocks, appreciated real estate, and more. The types of assets that your DAF accepts will vary depending on the fund’s owner.

3 Tax Benefits of Donor Advised Funds

1. Your Contributions Grow Tax-Free

When we give, we always want to give as much as possible to make the biggest difference possible. That’s what makes a DAF a great choice to maximize your donations. Because these assets belong to your fund’s charitable sponsor, once they go into your account, your contributions grow tax-free. 

2. Your Donations are Immediately Tax-Deductible

Subject to income limitations, you may be able to take an immediate tax deduction when you contribute to your DAF. For this reason, your advisor may recommend that you contribute to your DAF to offset your tax liability. This allows you to reduce the tax you owe if you were to receive a great deal of money at once, in an inheritance, for example. 

3. You Can Reduce Capital Gains

DAFs are often recommended because they can be a good way to reduce your capital gains taxes on appreciated assets. In certain circumstances, you can contribute an appreciated asset and deduct its current market value rather than what you originally paid. This makes DAF a commonly used tool in the financial planning toolkit. 

Make the Most Out of Your Charitable Giving

Southwestern Investment Group advisors strive to make charitable giving a priority for our clients. We know that your donations can make a difference in the world, while also providing you with tax advantages and adding to your long-term financial strategy. Want to make charitable giving part of your plan? Contact Southwestern Investment Group today to schedule a consultation with an advisor near you.

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