How to Maximize Your Charitable Impact with Donor-Advised Funds

Make A Difference

As a physician, you have a unique opportunity to make a difference in the world through your charitable giving. You have the skills, the income, and the passion to support the causes and organizations that matter to you. But how can you make sure that your giving is as effective and efficient as possible? How can you optimize your tax benefits, simplify your administration, and grow your charitable impact over time?

One of the best answers to these questions is donor advised funds (DAFs). DAFs are accounts that allow you to donate money or assets to a sponsoring organization and get an immediate tax deduction. You can then advise the sponsoring organization on how to distribute the funds to the charities of your choice over time. You can also invest the funds and potentially increase your charitable impact.

My wife and I have had a donor-advised fund with Fidelity for several years and we absolutely love it. Being generous stewards of our high income has always been a priority for us, as we currently donate 20% of our gross income. Additionally, our businesses also allocate a portion of their annual budget to charitable donations. The majority of these funds, both from us personally and from our businesses, are directed to our donor-advised funds.

Every fall, during our annual "Dare to Dream" retreat, we carefully consider the regular and one-time distributions that come from our Donor Advised Fund. It's convenient because we can manage it directly from the Fidelity website, and for tax purposes, our charitable contributions are easily tracked.

Use Your Micro-Business

A common question that arises with micro-business owners is whether a charitable donation is a deductible business expense. Keep in mind C corporations are technically the only business structure that can take a deduction when donating to charity. When an S-Corp donates to a qualifying charitable organization, it’s recorded on the businesses’ books and business tax return, however the deduction is claimed on the owners’ tax returns.  When the S Corp tax return is filed, charitable contributions are shown separately on a line of the owner’s K-1. When the K-1 is included in the owner’s personal tax returns, the charitable contribution will flow through to Schedule A, where itemized deductions are reported. 

I recommend you consult with a tax professional if you have any questions about your contributions.

In this weeks “Is that Deductible?” post, I am going explain the benefits of using DAFs for your charitable giving, and how you can get started with one of the leading providers of DAFs, Fidelity Investments. I will also introduce you to a new tool that can help you find and compare the best DAFs for your needs, DAFFY.org.

What Are the Benefits of Using DAFs for Your Charitable Giving?

DAFs offer many advantages for donors who want to maximize their charitable impact. Here are some of the benefits of using DAFs for your charitable giving:

• Tax efficiency: You can get an immediate tax deduction for your donations to a DAF, regardless of when you give to the final charities. You can also donate appreciated assets, such as stocks or real estate, and avoid paying capital gains taxes. You can also reduce your estate taxes by removing the donated assets from your taxable estate.

• Flexibility: You can donate to a DAF at any time, and decide when and where to give later. You can also change your mind and switch charities as your interests and goals evolve. You can also involve your family and friends in your giving decisions and create a family legacy of giving.

• Simplicity: You can manage all your giving from one account, and avoid the hassle and paperwork of giving to multiple charities directly. You can also access online tools and resources to track your giving, research charities, and measure your impact. You can also get guidance and support from the sponsoring organization to help you achieve your giving goals.

• Growth: You can invest the funds in your DAF and potentially grow your charitable impact. You can choose from a range of investment options offered by the sponsoring organization, such as money market funds, index funds, or socially responsible funds. You can also change your investment allocation as your goals and risk tolerance change.

How to Get Started with Fidelity Investments DAF?

Fidelity Investments is one of the largest and most reputable providers of DAFs in the country. They have been offering DAFs since 1991, and have helped more than 250,000 donors support over 300,000 charities. They have also distributed over $51 billion in grants from their DAFs, making them the largest grantmaker in the United States.

If you are interested in opening a DAF with Fidelity Investments, here are some steps to get started:

• Choose a name for your DAF: You can name your DAF anything you want, such as your name, your family name, or a name that reflects your charitable mission. You can also choose whether to make your DAF public or private, and whether to disclose your name or remain anonymous to the charities you support. We chose to name ours “Tod & Ellen Stillson Foundation”—pretty straight foward:)

• Open an account with Fidelity Charitable: You can open an account with Fidelity Charitable, the public charity that sponsors the DAFs offered by Fidelity Investments, by filling out an online application form and making an initial contribution. The minimum contribution is $5,000, and you can contribute cash, checks, credit cards, or appreciated assets, such as stocks, bonds, mutual funds, or real estate. You can also set up recurring contributions or donate a portion of your income or bonus.

• Recommend grants to your favorite charities: You can recommend grants to the charities of your choice at any time, as long as they are qualified 501©(3) organizations. You can specify the amount, frequency, and purpose of the grants, and add a personal message if you wish. You can also make anonymous grants if you prefer. Fidelity Charitable will review and process your recommendations, and send the grants to the charities on your behalf.

• Invest and grow your charitable dollars: You can invest the funds in your DAF and potentially grow your charitable impact. You can choose from a range of investment options offered by Fidelity Investments, such as money market funds, index funds, or socially responsible funds. You can also change your investment allocation as your goals and risk tolerance change.

There’s An App For That DAFFY.org

Daffy launched a few years ago with a relatively simple mission: help people be more generous, more often. And to fulfill that mission, they launched the first fully functional donor-advised fund available in the App Store.

Daffy, however, did not set out to just build a modern donor-advised fund. Their product goal is to build a better system for giving.

The Daffy system has four core features:

1. Set a goal for your annual giving.

2. Automate your contributions to put money aside regularly for giving.

3. Automate your recurring donations to support your favorite organizations.

4. Consolidate all your receipts in one place for tax season.

Daffy has made giving easy and accessible for every physician via their app. and I encourage you to consider using it if you are new to giving. By utilizing the Daffy app, you not only have access to a wide range of charitable causes but also gain insights into how your contributions are making a difference. You can track your impact over time and see firsthand the positive change you're creating in communities. Furthermore, by incorporating technology into the giving process, Daffy ensures that donating fits seamlessly into your busy life. With just a few taps on your smartphone or tablet, you can make an immediate impact on causes close to your heart!

Conclusion

Unlock the full potential of your charitable impact by leveraging the numerous advantages offered by Donor Advised Funds (DAFs). DAFs stand out as one of the most effective ways to amplify your giving, providing tax efficiency, flexibility, simplicity, and growth for your charitable contributions.

Generosity is one the pillars of the SimpliMD Way, and it proves to be one of the best ways that you can leverage the autonomy and financial benefits that you gain through micro-incorporation.

I invite you to become a member of our SimpliMD community today and learn how not only thrive in today’s marketplace as a micro-business, but to learn how to be more generous.

Tod