FJC does not provide tax or investment advice, but now is a good time to seek expertise about how to use contributions to your DAF account to maximize your tax efficiency.
The CARES Act enables donors to deduct up to 100% of their adjusted gross income (“AGI”) for qualified contributions of cash made in 2020. Previously, a deduction for cash gifts to charities was limited to 60% of AGI. Any qualified cash contributions that exceed 100% of your AGI in 2020 can be carried over to the 2021 tax year and beyond if needed. Ask your tax advisor whether this option makes sense for your situation.
You may want to speak to your tax advisor also about the SECURE Act, which among other provisions, requires (with certain exceptions) that inherited retirement account distributions given to nonspousal beneficiaries be fully distributed within ten years. You can no longer stretch out the withdrawals and required tax payments on each distribution over the beneficiary’s life expectancy. Making use of a charitable remainder trust to receive the retirement plan distribution will enable payments to individual beneficiaries to be paid over their lifetimes and taxed accordingly. And interestingly, the remainder interests in these trusts can be designated for distribution to a family DAF at the end of their term.
Fun fact: the law allowing tax-free withdrawals from an IRA if distributed to charities still applies. These are called Qualified Charitable Distributions (QCD). Please note that contributions to DAF accounts are excluded from QCDs. However, if you’re interested in partnering with FJC on a program that uses QCDs outside of a DAF mechanism-for example, setting up a matching fund to encourage collective action from FJC donors around a particular philanthropic theme – please contact us! We love working with donors with bold ideas!