Donating to the causes you are passionate about not only benefits the charities themselves; it is widely rewarding for you as well. A donor-advised fund is similar to a charitable investment account and has the sole purpose of supporting charitable organizations that align with your morals and goals. When you contribute securities, cash, or other assets to a donor-advised fund at a public charity, you can then be eligible to take an immediate tax deduction.
Further, those funds can be invested for tax-free growth. These contributions can be huge wins on both ends. Not only can you grow your funds, but you can also support sustainable investing that aligns with your viewpoints. Below, we dive deeper into the process of giving to charity via donor-advised funds.
1. Contribute assets
To establish your donor-advised fund, you make an irrevocable contribution of personal assets—which could include cash, stock, real estate and more. Your contribution is recorded as a donation and the balance will be reflected in your donor-advised fund account. Schwab Charitable accepts a wide range of assets, helping you turn a variety of assets into philanthropic capital.
2. Receive an immediate tax deduction
When you contribute to your donor-advised fund, you may be eligible to claim an itemized tax deduction for federal and/or state income tax purposes. Because Schwab Charitable and other donor-advised fund sponsors are public charities, your donation is considered a tax-deductible charitable contribution.
The amount of the deduction will depend on several factors, including the type of asset donated and how long you have owned it. This arrangement allows you to plan your gift so that you can take the tax deduction when it makes sense for you and to recommend grants to your favorite charitable organizations at any point in the future.
3. Personalize your DAF account
As you establish your donor-advised fund account, you can structure it in a way that best meets your charitable goals. You can name your donor-advised fund (DAF) anything you would like; appoint friends and family members to help you manage the responsibilities of a DAF; and design a Legacy Plan to determine what will be done with your DAF assets beyond your lifetime, which may include appointing successors or charitable beneficiaries.
4. Invest your DAF assets for growth
You can recommend an investment strategy for the assets in your donor-advised fund account by selecting an allocation from among the pre-approved investment offerings. The assets in your DAF are invested following your recommendations. Any investment growth is tax-free, giving you the potential to create even more philanthropic capital for grantmaking.
5. Support your favorite charities, now or in the future
As soon as your donor-advised fund is established and funded, you can recommend grants to the charitable organizations closest to your heart. Schwab Charitable can approve grants to most organizations that are tax-exempt under Internal Revenue Code (Code) Section 501(c)(3) and classified as public charities under Code Section 509(a), as well as certain private operating foundations.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.