Top 5 benefits of donating to donor-advised funds

Would you like to make a donation that not only supports a cause you believe in but also reduces your taxes? Maybe you’d like to get the tax benefits now, but take your time determining which charities your money should go to? Many high-earning physicians find that taking advantage of a donor-advised fund is often a simple and tax-savvy way to make charitable contributions. 

What is a donor-advised fund?

A donor-advised fund (DAF) is a special type of account that’s used specifically for making charitable donations. You (the donor) make contributions to a non-profit, third-party entity that hosts the account (the sponsor). You then recommend to the sponsor which charities you’d like your donations to be granted to.

Your contributions to the DAF can be made in the form of:

• Cash
• Securities (stocks, mutual funds, ETFs)
• Real estate
• Private equity interests
• C-corp and S-corp shares
• Cryptocurrencies

Keep in mind, though, that once a contribution has been made to the DAF, the transfer is irrevocable. Always consult with your financial advisor before funding your DAF to discuss the option most beneficial to you.

What are the benefits of DAFs?

DAFs offer a variety of benefits for high-earning physicians looking to reduce taxes, support their favorite charities, and simplify their giving strategy.

How do I contribute to a donor-advised fund?

Chances are that if you’re already investing with a major full-service brokerage then you’ll have the opportunity to contribute to a donor-advised fund. Many reputable services like Vanguard, Fidelity, and Charles Schwab each have charitable arms that qualify as a section 501(c)(3) organization according to the IRS. For some of these institutions, the minimum starting amount can be as little as $5,000.

Several public and community foundations also serve as DAF sponsors. These organizations will typically cater to specific social, regional, and faith-based causes.

Make the most of your charitable donations

Donating to charity is a noble act, but it can also be done in such a way that is beneficial to your bottom line. After all, if you can save in taxes, you’ll ultimately have more wealth with which to make an impact. A donor-advised fund can be a great way to not only avoid paying taxable capital gains but also to have more flexibility over when charities will receive your grants.