Camille Tokerud | Getty Images
Generous individuals are putting more and more of their dollars to work at their favorite causes.
Increasingly, they’re using donor-advised funds to do it.
Account holders at Fidelity Charitable recommended $4 billion in grants during the first six months of 2019, an increase of nearly 50% compared to the prior year.
Meanwhile, Schwab Charitable said its donor-advised fund owners made more than $2.4 billion in grants over the 2019 fiscal year, ending June 30. That’s a 33% increase compared to the prior year.
Donor-advised funds are accounts that individuals can open at a brokerage firm or a large foundation and make gifts of cash and other assets.
Though the fund isn’t required to distribute grants to the charity right away, the donor receives an immediate income tax deduction for making the gift.
Any unspent assets in the account grow tax-free.
Popular recipients of grants included Feeding America, Planned Parenthood, Doctors Without Borders and the Salvation Army, Schwab Charitable found.
“Nonprofits have been smart around advancing their initiatives and causes,” said Pam Norley, president of Fidelity Charitable.
She attributes the increase in grant activity to nonprofits’ savvy about raising money and the sheer number of donor-advised fund accounts.
A confusing year
Douglas P Sacha | Getty Images
The generous grants arrive on the heels of a complicated year for charitable giving.
In 2018, individuals, foundations and corporations gave an estimated $427.81 billion to U.S. charities, according to Giving USA. Adjusted for inflation, that’s a decline of 1.7% from the prior year.
Last year, donors faced two major obstacles: There was a stock market decline toward the end of 2018, and taxpayers were grappling with changes to U.S. tax law.
In particular, the Tax Cuts and Jobs Act roughly doubled the standard deduction, so individuals who may have itemized deductions in the past were less likely to do so for 2018.
This meant people who claimed the charitable giving deduction in previous years may have not been able to claim the break on their 2018 return.
Strategizing for 2019
Salvation Army bell ringer volunteers William Schmidt (L), who is on his 20th year volunteering, and his grandson Bubba Wellens (R) ring their bells looking for a donation into a kettle outside a Giant grocery store November 24, 2012, in Clifton, Virgina.
Paul J. Richards | AFP | Getty Images
Charitably inclined donors can save on taxes and still enjoy the feel-good factor of giving.
They just need to plan.
For starters, while cash might seem like the simplest thing to give to a non-profit, it’s not the most tax-savvy way to donate.
Instead, consider making a gift of highly appreciated stock. “You get a deduction based on the fair market value,” said Kim Laughton, president of Schwab Charitable.
Further, a direct gift of stock goes further for the charity, versus selling your asset and giving away cash.
That’s because you’ll incur capital gains taxes when you sell your shares.
Another strategy that’s gaining traction is bunching your charitable giving — that is, lumping in at least two years’ worth of gifts — to get a charitable deduction that’s large enough to help you get over the threshold and itemize.
This way, you’ll itemize deductions in one year and then take the standard deduction the following year.
“For clients who are raising families and have other savings needs, they might have $5,000 that they can give to charity,” said Jeffrey Levine, CPA and director of financial planning at BluePrint Wealth Alliance in Garden City, New York.
“We’re going to wait three years and let them give $15,000 in one shot, instead of $5,000 each year,” he said.