There are many places to make tax-deductible charitable donations, but getting one that aligns with your intentions is not as easy. When choosing charities to donate to, make sure that the donor-advised fund or private foundation can give to the charities of your choice. If you use a religious group or some community group, they may not be willing to contribute money to some organizations that operate on different principles. Find out beforehand if your grants are acceptable to them.
The Costs Involved
Besides choosing where to put the money, there will be considerable differences in the costs and limitations on how you can give. You will have varying fees and may be required to distribute some of the money annually—5 percent annually in a private foundation. You will also pay excise taxes of up to 2 percent of your annual income from the investment in a private foundation—but none in a DAF.Tax Write-Off for Donations
There are limits on how much you can deduct charitable donations from your taxes. For instance, NPTrust says you can only deduct up to 30 percent of your adjusted gross income (AGI) on cash gifts when you donate to private foundations. In contrast, cash gifts given to a donor-advised fund enable you to deduct up to 60 percent of your AGI.Directed Giving
Although you could donate money to charity and be done with your gift-giving for the year, you probably would prefer seeing your money grow and support those causes for some time. Both private foundations and DAFs can set up accounts for ongoing growth and giving.Contribution Size
When you intend to make smaller donations, a DAF may be preferable. DAFs usually require at least $5,000 to get started. When choosing a private foundation, your charity gifts need $1 or $2 million to get started. You can also expect some costs for legal filing and accounting.Giving assets other than cash or stocks would be better donated to a private foundation, especially if considerable value is involved. When you want to donate items to charity, such as valuable art collections, antique car collections, or other assets worth millions should be given to a foundation because they are better equipped to handle items of larger value.
Administrative Duties
Making charitable donations and having little to do afterward depends on which agency you choose. Donor-advised funds can often be managed by the organization with little input from you—but when dealing with a private foundation, you will be required to handle the record-keeping, management of the assets, reviewing grant solicitations, and tax filings. Both types can manage the assets for you, but extra costs should be expected.It is less expensive to use a DAF than a private organization. Fees will range from about 0.85 percent for a DAF, but up to about 2.5–4.0 percent when using a private foundation.
Matters of Privacy
Private foundations, Schwab Charitable reveals, are required to publicly disclose information about contributions and grants they receive when they file their tax forms (IRS Form 990-PF).Reduce Your Taxable Income
Donating assets to a qualified charity or religious organization enables you to deduct them immediately from your taxes. You can also donate retirement funds—including required minimum distributions (RMDs)—from an IRA or 401(k). You will not pay tax on the money contributed if it is contributed directly to the charity. If need be, Honolulu Financial Partners says you can stay in control of these funds if you should need them simply by naming the charity as your beneficiary. It enables you to donate a portion or all of it.IRA Conversion
If you have a traditional individual retirement account (IRA) and are ready to convert it to a Roth IRA, you have to pay taxes on the converted amount. It is considered taxable income, Investopedia says. Taxes on that money will range between 10–37 percent to depending on your tax bracket.If you have questions about how a charitable contribution can best reduce your taxes, grow your investment, and enable you to give for many years, contact a financial advisor or an estate planner near you. There are various ways to donate to charity, but they can help you make the best decisions.