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The tax-savvy reason smart donors have stopped writing checks to charity
Giving to charity may be its own reward, but for many, getting a tax deduction is the icing on the cake. Yet most people may not realize they are leaving funds on the table by giving the old-fashioned way with a check or credit card and saving up their stack of receipts for tax time. There’s now a way to streamline the charitable giving process, while also tapping into additional tax benefits that may help you increase your impact. It’s called a donor-advised fund.
A donor-advised fund, like the Giving Account at Fidelity Charitable, is a dedicated charitable account used for the sole purpose of supporting charities you care about. When you contribute cash, securities or other assets to a donor-advised fund sponsoring organization like Fidelity Charitable, you are generally eligible to take an immediate tax deduction. Then you can recommend both grants to charities and investment of the contributed funds to potentially grow those charitable dollars tax-free over time. Ultimately, this can allow even more money for charitable grants. Here are the key benefits:
Because donor-advised fund sponsoring organizations, like Fidelity Charitable are charities, you are eligible for a tax deduction this year. But the funds can be used to support the charity of your choice on your own timetable. This makes a donor-advised fund a powerful option for anyone experiencing a high-income year or windfall, or someone in their prime earning years with little time to devote to giving. Take the tax deduction now when it’s most valuable to you—and prefund your charitable giving for the future, whether that’s tomorrow or 15 years from now.
You can easily give appreciated stock or other appreciated non-cash assets, like restricted stock, real estate, bitcoin or shares in a private business, tapping into tax benefits many leave on the table. The U.S. tax code makes it possible for you to potentially eliminate capital gains tax on any appreciated assets donated, so long as they’ve been held for more than a year. This could allow your charitable gift to be over 20 percent greater than if you sell the asset first and then donate the cash proceeds of the sale. With a donor-advised fund, it is easy to make these kinds of charitable contributions. In fact, at Fidelity Charitable, a team of in-house experts provides complimentary support accepting contributions of non-cash assets and converting them into charitable dollars.
Charitable contributions can grow tax-free. By choosing from among a wide variety of investment options, your Giving Account can potentially increase in value and provide more for grant-making. For example, one Michigan-based couple, Dan and Jill Francis, increased the balance in their Giving Account through the added tax benefits of donating appreciated securities and tax-free investment growth of the balance over time. That additional amount allowed them to help send 79 more children to preschool than they could have without a donor-advised fund. “There's just no question that our Giving Account has allowed us to do more good than we could have without it,” says Dan Francis.
All your giving is organized in a single place. You don’t have to keep track of every gift acknowledgment from every charity you support—just the receipts from your contributions to your Giving Account. There’s no need to take out your credit card or checkbook. Simply log in online and recommend a grant to any 501(c)(3) public charity you care about. Plus, your giving dashboard tracks your impact over time, showing exactly how much support has been provided to every charity.
In a recent interview on the PBS show WealthTrack, Elda Di Re—a partner at Ernst & Young with a focus on tax, financial and charitable planning—told host Consuelo Mack that she frequently recommends donor-advised funds to many of her wealthy clients instead of a private foundation, but she notes that a donor-advised fund can also be useful for a wide range of people. For example, a Fidelity Charitable Giving Account can be opened with a contribution of as little as $5,000. “It is a great, great vehicle for the 99 percent of the population out there who do charitable gifting, and they make it very easy to gift,” she said in the interview.
Could a donor-advised fund help you save on taxes, have more to give, and enhance your giving experience?
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How Fidelity Charitable can help
Since 1991, we have been a leader in charitable planning and giving solutions, helping donors like you support their favorite charities in smart ways.
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