We all know that the Salinas Valley is a wonderful place to work, live and raise a family - amazing weather, mountains, valleys and the beautiful Monterey Bay. Cultural diversity adds to the success of our communities. But Monterey County is also known for its dedication to philanthropy. Investopedia defines philanthropy as follows: Philanthropy involves charitable giving to worthy causes on a large scale, but it is much more than just a charitable donation. Philanthropy is an effort an individual or organization undertakes based on an altruistic desire to improve human welfare, and wealthy individuals sometimes establish private foundations to facilitate their philanthropic efforts.
One of the most common challenges facing the potential donor is knowing the various ways one can donate to a worthy cause. Let’s examine one popular technique for making philanthropic donations to a non-profit organization and the potential tax benefits of doing so.
The Donor Advised Fund (DAF) is a charitable investment account that has gained in popularity in recent years. It provides for a way to make charitable contributions to a sponsoring organization which is operated as a 501(c)(3) and then retain advisory privileges as to the investment and final distribution of the account assets. Although first created in the 1930s, the DAF was not formally recognized in the IRS tax code until the passing of the Pension Protection Act in 2006.
Once the donor selects the sponsoring organization, cash, securities or other personal property can be deposited to the account that is created. The donation to the DAF generates an immediate tax deduction for the full market value of the assets donated up to 30% of the donor’s gross income (60% for a cash donation). The donor, or the donor’s representative, then works with the sponsoring organization for the investment of the assets and make requests as to the charities that will receive donations from the DAF account.
There are two strategies that potential donors may want to consider. First, donating highly appreciated assets to the DAF can provide for generous tax deductions of the fair market value of the assets donated, up to the limits noted. The advantage here is rather than selling the highly appreciated asset, paying the long-term capital gain and then donating the sales proceeds, the donor can effectively cut the tax man out of the transaction. So, the donor can support worthy causes of their choice and reduce their tax burden at the same time.
The second technique is donating the required minimum distribution (RMD) from an IRA account. Those with significant retirement income often do not need or want to take their RMD because it just creates additional taxable income. For 2025, the IRS allows a maximum qualified charitable distribution from an IRA of $108,000. So, rather than receiving a taxable distribution of up to $108,000, the donor can receive a tax deduction for up to that amount. As always, potential donors should consult their tax or financial professional before taking any action.
This material has been provided for general informational purposes only and does not constitute tax, legal, or investment advice. Hastie Financial Group does not provide tax or legal advice.