When giving to charity, no need for a rose ceremony

| December 15, 2023

I can’t get away from these wedding and marriage TV reality shows. They’re seemingly everywhere. Some of the most popular involve a man or woman giving away roses to potential future spouses, culminating either in a proposal or some kind of drama.

There’s a lot of pressure on the bachelor or bachelorette to make decisions at the end of each episode. You might feel this way when it comes to charity. A lot of people plan their charitable contributions at the end of the year. I’d advise starting earlier, but most people start thinking about it during the holiday season, and that’s the time of year on which many charities focus their campaigns. And there’s an additional time pressure: If you want to itemize your charitable deductions for the tax year, you need to make the donation by the end of the calendar year.

That isn’t the case for everyone. If your standard deduction is higher than these contributions, you won’t lower your tax bill by itemizing. Tax laws change and your individual situation might be different, so make sure to consult a tax expert.

If you are interested in making charitable donations and want to take advantage of potential tax benefits, but you want more time to decide on the beneficiaries, you have an option. You can set up a donor-advised fund (DAF).

DAFs are accounts created specifically for charitable giving. If you’re itemizing your donations, you can generally include contributions to your DAF for the tax year you donated. But you don’t need to select the recipient of your donations. While you decide, the funds within the DAF can grow tax-free. You can contribute cash and a range of investments, including stocks, bonds, and mutual funds.

This might sound like the type of account only a fat cat could afford to have, but it isn’t. You do need to open the account via a sponsoring organization, such as at the nonprofit division of a financial services firm. And you likely will be charged an annual administration fee as well as investment fees based on the account value. But the minimum to open an account can be as low as $0, and grant minimums can be as low as $50. Advisors at our firm and elsewhere can help you navigate your choices and setting up an account.

Now, these are irrevocable donations; once the funds are in the account, you can’t withdraw them. And technically, the sponsoring organization controls the funds, though you recommend how the account’s funds are invested (within the sponsor’s options) as well as grants to eligible nonprofits.

You can generally let the funds sit and grow until you decide where they should go, but the sponsor might have minimum grant frequencies. If you want to check out individual charities, Charity Navigator and Guidestar are good starting points.

Making charitable contributions by year-end can be a thorny process. But by taking advantage of DAFs, you can still receive the tax benefits in-year while deciding on the recipients later—and smelling like a rose in the process.





Evan R. Guido is the Founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com.   Read more of his insights at https://finance.heraldtribune.com/category/ask-guido/. Securities offered through Avantax Investment ServicesSM, Member FINRA, SIPC.  Investment advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through  an Avantax affiliated insurance agency.  6260 Lake Osprey Dr. Lakewood Ranch, FL 34240.  The views and opinions presented in this article are those of Evan R. Guido and not of Avantax Wealth Management® or its subsidiaries.  Past performance does not guarantee future results. The S&P 500 is an index of 500 major, large-cap U.S. corporations. Standard & Poor's is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index.  An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency.  Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.  CDs are FDIC insured and offer a fixed rate of return.  They do not necessarily protect against a rising cost of living.  The FDIC insurance on CDs applies in case of insolvency of the bank, but does not protect market value.  Other investments are not insured and their principal and yield may fluctuate with market conditions. Investments are subject to market risks including the potential loss of principal invested.