There are several ways you can help your clients reduce their tax burden and increase the money available to help those in need, especially at year-end. If your client has received a bonus, a windfall from selling a business, or an inheritance, this is an opportune time to set up a tax-efficient vehicle to make charitable giving more organized and strategic.
The most commonly used vehicles for philanthropy are private foundations, charitable lead trusts, and donor advised funds (DAFs). DAFs are the fastest-growing charitable vehicle because they are the most flexible and efficient way to give.
No matter how your clients give, here are helpful suggestions for maximizing their philanthropy and minimizing their tax burden:
- Donate appreciated long-term securities to maximize your tax savings. Clients can electronically transfer stock (DTC) to a 501(c) 3 public charity and receive an acknowledgement for a tax deduction. Mutual Funds and ETFs may also be donated. The client may claim a fair market value deduction up to 30% of adjusted gross income, and will not be subject to capital gains tax on the appreciated portion of the contribution. What’s more, if the securities that are held for more than one year are gifted to a donor advised fund, once the stock is liquidated, clients will be able to select investments offered by the DAF sponsor. Any income on these investments is tax-free, and credited to the individual’s DAF account.
- Gift real property, private stock, and other non-marketable assets with low basis. Once you transfer non-cash assets to a charity, you will not incur capital gains tax when the assets are sold, and the cash proceeds convert to philanthropic dollars. This can be very advantageous from a tax perspective, but many charities are unable to handle these complex transactions. However, some donor advised funds accept these non-marketable assets. Current market highs coupled with potential tax changes on the horizon could make this the optimal time to donate these appreciated assets, and JCF is uniquely situated to handle these complex gifts.
- Think digital. Consider using crypto-currencies for making donations directly to charities, or use these assets to fund charitable vehicles like donor advised funds. Most charities have made it quick and easy to contribute online, and this is helpful for the client who waits until the last moment to make contributions for 2021.
Fifty years of experience in charitable giving has proved that the best option at year-end is to establish a donor advised fund (DAF). It’s quick, easy and helps clients maximize their tax benefits and their philanthropy.
Donor advised funds make giving streamlined and tax-efficient. A DAF at Jewish Communal Fund could help organize your clients’ charitable giving, and eliminate the worry of recordkeeping and saving receipts. Plus, you have the peace of mind that your client is receiving JCF’s excellent customer service. In fact, even clients who might have not have itemized since the enactment in 2018 of the Tax Cuts and Jobs Act that significantly increased the standard deduction can still benefit from a DAF.
Use a DAF to “bunch” and accelerate giving. For clients who are charitably inclined, they can employ a tactic known as “bunching,” setting aside several years’ worth of charitable contributions into one taxable year, so that the itemized deductions in that year would exceed the amount of the standard deduction. Contributions to a donor-advised fund such as JCF can enable clients to pace the actual donations to charitable organizations over time, while still achieving the tax benefit of this “bunching” strategy. Once the DAF is established, fundholders have the flexibility to easily make grants to IRS-qualified public charities in all sectors.
Terminate a private foundation using a DAF. Eliminate the expense and burden of a private foundation. Transferring foundation assets to a DAF frees clients from the administrative and reporting requirements. Unlike private foundations, DAFs report in the aggregate, ensuring confidentiality and protecting fundholders’ privacy.
THREE SIMPLE STEPS TO SET UP AND USE A JEWISH COMMUNAL FUND DAF
- Complete an application and make an initial donation. Funds can be opened with a minimum contribution of $5,000, and typical fund sizes range from $50,000 to $10 million.
2. Invest the assets. JCF offers over 20 options including ESG investments and Jewish values impact investments.
3. Recommend grants to IRS-qualified charities in every sector.
When clients contribute assets to open a DAF, they can take an immediate tax deduction and make grants over time. Some DAFs allow fundholders to choose investments options, and any earnings are added to their DAF tax-free.
DAFs can be managed on a secure website that provides access to account information and grant-making at any
time. The DAF sponsor keeps track of all of the grants, eliminating receipts from multiple charities. Fundholders have the flexibility to set their own timetable for making grants to the IRS-qualified charities of their choosing. While grantmaking activity is encouraged, most DAFs do not have an annual minimum distribution requirement.
If clients are looking to maximize the impact of their giving, they should choose a donor advised fund that reflects their values. Jewish Communal Fund leverages the participation of their fund holders by making an annual major gift to UJA-Federation of NY. Additionally, our endowment, the Special Gifts Fund, makes grants to projects and organizations in the New York Jewish community such as support for kosher food pantries and services for the elderly. Furthermore, JCF offers mission aligned investments that reflect our Jewish values.
Let Jewish Communal Fund help you and your clients, visit JCFNY.org or contact Ellen Israelson at [email protected].