Enhance your corporate giving strategy with a donor advised fund
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Consider the benefits of an uncomplicated, tax-savvy way to give back.
Giving can create positive change in people, institutions and communities. It sustains a multitude of worthwhile organizations, launches innovative new ideas and gives us a sense of fulfillment.
A well-crafted giving strategy also holds a number of benefits for your company. It enhances employee engagement by giving your employees additional ways to connect with your company’s mission and the community. It can also strengthen your company’s roots within your broader community. While it may seem daunting to establish giving within your company, a corporate donor advised fund (DAF) can help maximize your impact and eliminate many of the administrative hurdles.
Similar to a private foundation, a corporate DAF provides an immediate full tax benefit and lets you donate to your favorite charities at any time in the future, but the operational costs are usually lower, management is easier and it gives you a simple way to engage your associates in giving back to the community, aligning your company’s values and mission with your giving practices. Below are some key things to know about corporate donor advised funds and how to get started.
The benefits of a donor advised fund
DAFs provide an easy way to make significant charitable gifts with immediate tax benefits and deductions. Similar to private foundations, DAFs serve as tax-efficient giving vehicles, offering many of the same benefits while being easier to set up and maintain. Some of these benefits include:
- No capital gains tax on long-term appreciated assets that are gifted
- Immediate tax deduction for the full market value of the gift for most assets (and any amount that can’t be deducted in the current year can be carried over and deducted for up to five succeeding years)
- No excise taxes, unlike a private foundation
- Assets donated are no longer part of the estate value
- No minimum annual distribution requirement
How corporate donor advised funds work
As a tax-qualified public charity, a DAF program provides you with immediate and full tax deductions and, at the same time, seeks to increase the value of your original gift through prudent investing.
The fund enables you to create a legacy of giving within your company, see the benefits in your lifetime and designate a successor donor, as well as name charities to receive grants beyond your lifetime.
Below we explore benefits of a DAF in more detail:
Immediate tax reduction
One of the most appealing benefits of a corporate DAF is that you can take an immediate tax deduction – up to the maximum allowed by law – for the amount you’ve donated. Then, you or the fund’s named donors (typically a CEO, CFO or business manager) can recommend the fund make grants to preferred charities at any time in the future. You can avoid the pressure of making snap year-end decisions to meet an income tax deadline, and you can spread your company’s giving over time. Recurring grants can be arranged, and you may be able to take a larger deduction within a given year than you would for a donation or contribution to a private foundation.
No capital gains tax
If you contribute long-term appreciated securities to the fund, you’ll avoid capital gains tax on the appreciated portion and receive an immediate charitable tax deduction for the full fair market value of your gift. This is particularly useful for shares bought at a very low price (or other basis) that have appreciated greatly over the years.
Creating a tradition of giving
Helping others and creating a positive impact in the community through giving can be a priority for your company that lasts far beyond your lifetime with a DAF. The fund enables you to create a legacy of giving within your company, see the benefits in your lifetime and designate a successor donor to recommend grants for you after your death. Alternatively, you may name specific charities to receive grants beyond your lifetime.
Choosing the charities and causes you want to support
While people support different charities, the one common denominator among donors is a generous spirit. You may recommend grants to any combination of more than 1.5 million U.S. charities that qualify as 501(c)(3) public organizations under the Internal Revenue code.
Because the timetable is up to you or your named donors, you will have plenty of time to consider your choices. Your advisor will verify the tax-exempt charitable status of the organizations you recommend, thereby protecting you from supporting nonqualified recipients and losing your tax deduction.
Once your company has chosen charities that align with your values and mission and you’re ready to give, you or the named donors can make grants from the account in amounts of $100 or more to as many qualified charities as you wish. (Your advisor can also do this if you’d prefer.) The fund will send a letter with the grant check to the charity, recognizing that you recommended the gift, or, if you wish, you can remain anonymous.
Next steps:
- Talk with your financial advisor to learn more about how a DAF can impact your company’s giving.
- Work with your legal and tax professionals alongside your advisor to coordinate the most appropriate charitable solution for your situation.
- Start thinking about the causes and organizations that are meaningful to you and your company that you would like to support through a DAF.
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a donor advised fund for federal and state tax purposes.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
