Tax Deductions and Charitable Donations

Savvy Financial Advisors Incorporate Donor Advised Funds

Donor Advised Funds (DAFs) are the cornerstone of charitable donations and tax planning. Financial advisors who understand the tax benefits of donor advised funds can guide conversations so high-net-worth clients can maximize charitable impact while minimizing tax liability.

Foundational Tax Benefits using a DAF

• Immediate Income Tax Deduction
• Avoid Capital Gains Tax on long-term appreciated stock
• DAF assets grow tax free
• Avoid Estate Tax – DAF assets are not part of the donor’s estate
• May reduce Alternative Minimum Tax (AMT)

New to DAFs or need a quick refresh?

Explore the basics here:

What is a donor advised fund?

How donor advised funds work.

Beyond the basics, financial advisors can make DAFs a powerful tool.

Let’s consider six planning strategies that incorporate DAFs.

Unlock Advantages of Donating Appreciated Assets

• Donate over-represented or long-term appreciated assets rather than selling
• Receive immediate Income Tax Deduction
• Avoid Capital Gains

Donate private business interests

S-Corp, C-Corp, LLCs, LPs

S-Corp considerations

• DAF takes on the Donor’s cost basis
• Subject to Unrelated Business Income (UBIT) on
  • Gain from the sale of the shares – and –
  • Share of any S-Corp generated income during the DAFs ownership of the shares

Donate restricted shares

• Shares owned by DAF sold after legal counsel removes potential sale or transfer restrictions
• Receive immediate income tax deduction
• Avoid capital gains

Roth conversion tax liability off set

• Donate assets other than Roth assets to a DAF in an amount to offset all or part of the Roth conversion tax liability
• Explore: Roth IRA Conversion Strategy with DAFs

Charitable Remainder Trust (CRT) – Transition to Charitable Lifetime Giving

• Donor may no longer need the CRT income (taxable)
• Remainderman (aka charity) designation is irrevocable
  • Remainderman consents to DAF designation in consideration of lifetime benefits
• Donor assigns the income interest in the remainder interest to a DAF
  • DAF is now the income and remainder beneficiary, ending the CRT since its assets are moved to the DAF, allowing the donor to make grants during their lifetime
• Recalculated original income tax deduction can be highly beneficial to donor
• In turn, the financial advisor can manage the DAF assets – both the income and former remainder assets – increasing AUM longevity

Tip: Donors can support their charitable interests while living and potentially generate a substantial additional income tax deduction. This occurs in the CRT acceleration strategy when the original tax deduction is recomputed to reflect the earlier remainder distribution. Be sure to engage your client’s estate planners and CPAs.

QCDs (Qualified Charitable Distributions) that financial advisors manage

• Donor makes a QCD directly to a Designated Fund
  • Caveat: QCDs cannot go to DAFs, private foundations or supporting organizations
  • Removes cash from the donor’s taxable income; donors who take the standard deduction can use this strategy
• 2025 maximum annual amounts for QCDs
  • $108,000 per individual
  • $216,000 for married filing jointly
• Available to donors 70½ and older
• Can satisfy Required Minimum Distributions
  • Begin at age 73 in 2025

Tip: As a national community foundation, iGiftFund has Designated Funds (DRFs) that can accept QCDs. iGiftFund’s DRFs are charitable assets that financial advisors can manage, allowing AUM retention and growth.

Contact iGiftFund – Our experienced professionals are here to assist and provide insights on seamlessly integrating DAFs into your practice.