Charitable Planning
Giving is important to us, and we know it’s important to you! Supporting charitable causes in a way that is beneficial to you and your family is just a bonus.
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Philanthropic Values Statement Worksheet: This handout takes you step-by-step through things to consider when crafting your and your family's philanthropic values statement.
Frequently Asked Questions:
What is a Donor-Advised Fund?
A Donor Advised Fund or DAF, is a program sponsored by an organization classified as a public charity that allows a client to make an irrevocable charitable contribution, take advantage of an immediate tax benefit, and then recommend grants from the DAF over time to specified IRS-qualified 501(c)(3) public charities.
There are several benefits in establishing a DAF, including:
Providing for a tax deduction the year the contribution is made to the DAF (requires itemizing deductions when filing tax returns)
Accepts not only cash contributions but donations of appreciated securities, which may allow the owner to avoid potential Capital Gains Tax on the donated securities
Balance is invested and can grow over time
Far less costly than establishing a private foundation
Provides the flexibility to “lump” multiple year’s contributions in a single year while allowing donors to make Grants to Charities when they’re ready
Being intentional with your gifting strategy has become very important now that the standard deduction nearly doubled in size due to the Tax Cuts and Jobs Act of 2017
What is the benefit of establishing a Donor Advised Fund?
Where can I set-up a DAF?
You would set up your donor-advised fund through a sponsoring organization. Sponsoring organizations are often established from financial services and investment firms, which provide investment management, administrative, and reporting services for the fund. The sponsoring organizations are recognized by the IRS as tax-exempt public charities, eligible to receive tax-deductible charitable contributions under the Internal Revenue Code.
While there is no contribution limit to a DAF, some institutions may require a minimum initial deposit. You should always discuss your desired contribution level with your financial and tax advisor to ensure you’re being as tax-efficient with your gifts as possible as certain deduction limitations may apply if contributions exceed a percentage of your adjusted gross income for the year.
How much can I contribute?
What charities qualify for distributions from a Donor Advised Fund?
You are able to direct grants from a DAF to qualifying nonprofit organizations. These qualified charities include houses of worship, organizations covered by a valid group exemption, government entities and 501(c)(3) tax-exempt charitable organizations. Fulfilling a pledge with a DAF is not permitted, nor is a Qualified Charitable Distribution (QCD) from an IRA.
Do I have to itemize deductions to reap the most tax benefits from my Donor Advised Fund contribution?
Yes, your contributions will not reduce your overall tax liability if your contributions do not exceed the standard deduction. A popular strategy to consider would be to lump gifts into one year to ensure you exceed the standard deduction. Click here to read a blog that covers this concept in greater detail. However, it’s still important to note that even if you aren’t able to itemize your DAF contribution, if you’re facilitating your gift with appreciated securities, there’s a still a tax benefit to you as the donor because you’re avoiding the capital gains tax on the position you gifted.
What is a Qualified Charitable Distribution?
According to the IRS, a Qualified Charitable Distribution (QCD) is an otherwise taxable distribution from an IRA, except for an ongoing SEP or SIMPLE (IRA), owned by an individual who is age 70 ½ or over that is paid directly from the IRA to a qualified charity. Distributions from IRA accounts made to directly to qualifying charities are NOT reported as taxable income.
Am I eligible to make a QCD?
Individuals must be at least age 70 ½ to make a QCD and the distributions must be made from amounts that would otherwise be taxed as ordinary income. For example, non-deductible contribution amounts would not be eligible for the distribution.
What accounts can I use to make QCDs?
Traditional IRA
Inherited IRA
SEP IRA
SIMPLE IRA
Roth IRA (while a QCD is technically allowed to be made from a Roth IRA, we have yet to run into a scenario where it would make sense to gift directly from this retirement vehicle)
Qualified retirement plans such as 401k and 403b accounts are NOT eligible for a QCD. In many cases, it could make sense to roll funds into an IRA from the qualified retirement plan to then make the dollars “eligible” for the QCD.
How much can give each year from my IRA?
Individuals age 70 ½ or older can make qualified charitable contributions up to the annual limit of $100,000 per person (meaning a married couple could donate up to $200,000). This limit applies to the sum total of distributions within a calendar year, regardless of whether distributions are made to one or more charities.
How do I actually facilitate a QCD?
How you actually process a QCD is extremely important. Funds MUST go directly from your IRA to the charity of your choice, no exceptions. If you send dollars from your IRA to your checking account and then cut a check from your checking account to the charity, the QCD will be disallowed.
Do I have to itemize deductions to make a QCD?
No, you do not have to itemize deductions in order to make a QCD since you are not actually taking a deduction on the amount of your QCD. These distributions are reported by your IRA custodian as a normal distribution. When filing your tax return, you report the amount of your QCDs as not taxable, thereby excluding it from your total gross income.
If you do itemize your deductions, you cannot then claim the amount of the QCD as a deduction, as your charitable distribution has already been excluded from your taxable income. (Sorry, no double counting!)
Why should I make charitable gifts using a QCD?
Making a charitable donation directly from an IRA distribution provides the potential benefit of excluding from your gross income that distribution amount that would otherwise add to your taxable income. As an example, let’s say Mrs. Smith is 73 and must begin taking her Required Minimum Distribution (RMD) from her IRA that would be fully taxable. Rather than taking this as a normal distribution, she donates that amount to her favorite qualified charity directly from her IRA. Mrs. Smith is able to satisfy her RMD for that year and the amount of that distribution does not count as part of her taxable income. This is particularly useful for individuals that don’t itemize deductions in a given tax year and therefore do not receive a tax benefit from making charitable donations out-of-pocket.
To learn more about how the new tax law changes in 2018 could affect your planned giving through QCDs, click here.
Contributions to a DAF are irrevocable. Raymond James does not provide legal or tax advice. Taxpayers should seek advice based from independent legal or tax professional prior to opening account.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.