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Donor-Advised Fund

When investors make contributions to a Donor-Advised Fund, which are treated as contributions to a public charity, they can take an immediate tax deduction.

Commonly referred to as charitable donor-advised fund

Do I Qualify for the Donor-Advised Fund?

If you contribute cash, securities or other assets to a donor-advised fund at a public charity, you’ll be eligible to take an immediate tax deduction.

2022 Donor-Advised Fund Details

How do Donor-Advised Funds work?

Generally, it's a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges over the distribution of funds and the investment of assets in the account.

A Donor-Advised Fund (DAF) must meet the below three definitions. A fund our account:

• Owned and controlled by a sponsoring organization.
• That is separately identified by reference to the donor’s contributions.
• Where the donor has advisory privileges over the distribution and investment of the assets.

Exceptions:

• Funds or accounts that make distributions only to a single identified organization or government entity aren't DAFs.
• Funds or accounts for which a donor provides advice regarding grants to individuals for travel, study or other similar purposes aren't DAFs, with some exceptions.

You can donate securities you have held for more than one year, and they will be received at fair market value and are not subject to capital gains taxes. Donations of marketable securities and appreciated assets are limited to a deduction of 30% of the taxpayer’s AGI.



Deduction Limitations

Generally, contribution limitations to donor-advised funds are the same as other charitable limitations. However, donor-advised funds do not qualify for the suspension of the 60% AGI limitations under the CARES Act and American Rescue Plan Act. The 60% AGI limitation for cash contributions is still in effect, as the contribution is not made directly to the receiving charity. For contributions of securities, the deduction limitation is 30% of AGI. Unused contribution deductions may be carried over up to five years to offset income.

Donor-Advised Fund

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Benefits

• No annual distribution requirements.
• Compliance is outsourced to the sponsoring organization.
• Contributions can be anonymous.
• Simple, turnkey, assets under management model.
• Reduces taxable income.
• Allows for greater charitable impact than individually targeted donations.

Considerations

• The charitable donor-advised fund must be owned and controlled by a separately identified sponsoring organization.
The donor must have advisory privileges over the distribution and investment of the assets in the fund.

Assumptions When Taking the Donor-Advised Fund

• The DAF is a qualifying 501(c)(3) charity.
• Contributions are made in cash, not securities or appreciated assets.

Conflicting Strategies

• Private Foundation

Requirements to Claim the Donor-Advised Fund

• The charitable donor-advised fund must be owned and controlled by a separately identified sponsoring organization.
• The donor must have advisory privileges over the distribution and investment of the assets in the fund.

Business Entities That Can Claim the Donor-Advised Fund

• Individual

The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.

Prosperity Tax Advisors
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