Many generous donors require a practical foundation for their charitable efforts, and that’s where donor advised funds come in. It’s a philanthropic tool run by a third party to manage and facilitates donations from individuals, families, or organizations. However, setting up donor advised funds is simple and offers many benefits.
Here is the importance of donor advised funds.
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1. Favorable tax deductions
Donor advised funds and contributions are gifts to the public and are eligible for favorable tax strategies. You can take federal income tax charitable deductions of up to 60% of your adjusted gross income on gifts. The tax system is simple, and you’ll get one tax receipt for the donations into the donor advised funds (DAF).
2. Support more causes with a single gift
The primary goal of donating to charity is to make a significant and positive impact. Sometimes, that will require you to support more than one cause. With DAF, it’s easy and possible to support several reasons using a single gift. The organization distributes your single gifts to various causes per your wishes. That means will get a single tax receipt for your annual gift donations.
3. Tax-free growth now and in the future
Funds in DAF have the potential to grow tax-free. Meaning you will have more money for granting your preferred recipient. The two tax-free and growth potential elements make DAF an ideal solution for current and future gift planning.
4. Effective way to give
Starting a charitable foundation is an expensive route for your generous gifts. You can avoid all the hassle by using donor advised funds. You will enjoy similar benefits to private charitable foundations but low operating and overhead costs. That means most of your gift capital will directly go to charitable work rather than covering costs.
5. Flexible giving options
As a donor, there is various upfront consideration you need to work through. Such include the ability of charities to receive non-cash assets. That’s because some platforms are rigid and have limited giving options. Fortunately, DAF allows you to give a range of non-cash assets such as stock, shares, cash equivalents, etc.
6. Donor-designated beneficiaries
The primary importance of DAF is the ability to choose the cause that will receive your support and when it shall be granted. After you decide on the recipient, the foundation managing DAF will confirm that the recipient is eligible and ensure the funds are directed to your specified purpose. That gives you the freedom to support specific causes or adjust to the reasons you wish to keep.
7. Maximized community impact
DAF foundation can assist you in designing a giving strategy that enables meaningful community impact. Such processes will allow you to connect with people and causes. The interactions and connections help you align your gifts with the community’s needs.
Donor advised funds are gaining popularity and have been growing significantly. That’s primarily due to the numerous benefits unavailable in private foundations. Also, donor advised funds are critical and effective ways to ensure your favorite charity gets generous and consistent funding. Remember, the charities you love need you even when your business isn’t profitable.