Are you looking for a way to make donations to charities that matter to you but don't have time to research all the different organizations? A donor-advised fund may be the perfect solution for you.
However, it's important to understand how these funds work so that you can avoid making any mistakes. This article highlights how you can make the most of donor-advised funds and steer clear of any potential pitfalls.
Donate What You Can Afford
A donor-advised fund is a great tool to help you give back, but it shouldn't put you in a difficult financial position. Be honest with yourself about what you can afford to donate and stick to that amount.
There's usually no minimum donation amount required to open a donor-advised fund, but some companies have a recommended starting balance. This figure is the minimum amount of money you should have in your account to cover the fees associated with operating the account.
You may be tempted to give more than you can afford to get the tax deduction, but resist that urge. Donating money you can't afford to part with can put a strain on your finances, and it's not worth it.
If you're unsure how much you can afford to give, start with a smaller amount and increase it as your financial situation allows. You can always add more money to your donor-advised fund later on.
Consider the Tax Benefits
Prospective donors often ask about the tax benefits of making a gift to a donor-advised fund. Although it's important to consult with your tax advisor to determine how a gift to a donor-advised fund may impact your taxes, there are some general principles to keep in mind.
For instance, when you make a gift of cash or securities to a donor-advised fund, you will typically be eligible for an immediate tax deduction. The deduction amount could depend on the type of asset donated and your particular tax situation.
In addition, any appreciation in the value of the assets you donate to a donor-advised fund will typically be exempt from capital gains taxes. As a result, more of your donation will support the charitable causes you care about.
Remember that you can recommend grants from your donor-advised fund at any time and for any purpose. But before recommending grants from your donor-advised fund, consult a qualified tax advisor to ensure that you understand the tax implications of your gift. By taking the time to do this, you can ensure that your donation has the greatest possible impact.