Can a donor-advised fund reduce taxable income?

A donor-advised fund (DAF) is a vehicle that’s strategic in nature and has the objective of helping funnel your money to charity. One of the positive points about this fund is that you can lump your donations in a single fiscal year. The best asset class to contribute to a donor-advised fund is appreciated securities. That is because the IRS allows donations of appreciated securities to charity, while still granting the full income tax deduction and tax-free appreciation of the assets. With the standard deduction being so high nowadays, it is hard to ever hurdle over it. For a married couple filing jointly, the deduction amount is $27,700. So your itemized deductions have to be higher than that amount for your donations to be tax efficient. Nonetheless, the use of a donor-advised fund allows you to bundle up all of your intended donations in one tax year, allowing you to get the income tax deduction for that specific year, and then spread your donations throughout your desired time.

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Missie Beach, CFP®, CDFA®
Senior Financial Advisor

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