Tax Planning Guide

The IRS sets annual limits on how much of your charitable contributions you can deduct, expressed as a percentage of your Adjusted Gross Income (AGI). These limits vary depending on the type of asset you contribute and the type of organization receiving the donation.

For contributions to a Donor-Advised Fund sponsored by a public charity like Investors Philanthropic, the limits are among the most generous available — making DAFs one of the most tax-efficient giving vehicles for high-income donors.

One of the most impactful tax strategies available to donors is contributing long-term appreciated assets — such as stocks, real estate, or business interests — directly to a DAF instead of selling them first.

When you sell an appreciated asset, you owe capital gains tax on the gain (up to 23.8% for high-income earners including the net investment income tax). By donating the asset directly to your DAF, you avoid this tax entirely and receive a deduction for the full fair-market value of the asset.

This strategy is especially powerful for donors holding highly appreciated, low-basis securities — including concentrated stock positions, restricted stock, or real estate with significant embedded gains.

The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, meaning many donors no longer itemize — and therefore receive no tax benefit from their annual charitable giving.

A DAF solves this problem through a strategy called 'bunching.' Instead of making smaller annual donations, you make a large lump-sum contribution to your DAF in a single year — enough to exceed the standard deduction and allow you to itemize. You then distribute grants to your favorite charities over multiple years at your normal pace.

This approach lets you maintain your regular giving patterns while maximizing your tax deduction in the year of contribution.

A DAF is an ideal tool for year-end tax planning because you receive the full deduction in the year of contribution — even if you don't distribute grants until future years. This gives you the flexibility to act quickly on a tax-planning opportunity without needing to identify specific charities immediately.

Common year-end scenarios where a DAF contribution makes sense include: receiving a large bonus, completing a business sale, exercising stock options, realizing significant capital gains, or converting a traditional IRA to a Roth IRA.

Donors age 70½ or older can make Qualified Charitable Distributions (QCDs) directly from their IRA to a qualified charity — up to $105,000 per year (2024 limit, indexed for inflation). QCDs count toward your Required Minimum Distribution (RMD) but are excluded from taxable income.

Important note: QCDs cannot be made directly to a DAF. However, they can be made to any other qualified 501(c)(3) public charity, including nonprofits you support through your DAF grants. For donors who want to support Investors Philanthropic's mission directly, a QCD to IP is an excellent option.

One of the most underappreciated benefits of a DAF is simplified record-keeping. Instead of collecting receipts from every charity you support throughout the year, you receive a single tax acknowledgment letter from Investors Philanthropic for all contributions made to your fund.

For contributions of non-cash assets valued over $500, you will need to file IRS Form 8283. For contributions over $5,000 (other than publicly traded securities), a qualified appraisal is required. Investors Philanthropic can guide you through these requirements.