By David L. Unruh, Board of Trustees
Most donors to Willistown Conservation Trust (WCT) are likely familiar with the common methods of contributing, using cash or appreciated securities to fund an annual or campaign gift. Many people tend to be reactionary with charitable giving, making multiple gifts throughout the year with no real plan in mind. This approach may result in donations that fall short of the impact donors hoped to make and fail to maximize the potential charitable gift tax deductions. Two potential solutions are proposed below:
Donor Advised Funds | The primary benefit of a Donor Advised Fund (DAF) is that it allows you to donate assets to charity today, and receive a current tax deduction, even though the actual funds may not be granted to the charity until some point in the future. In other words, the DAF essentially functions as a conduit, where the donor receives a tax deduction when the money goes into the DAF but the donor retains discretion about when the assets will finally leave the DAF and go to the charity. And in the meantime, assets inside the DAF grow tax-free.
Some key benefits of DAFs follow:
- You can make gifts to your DAF as often as you’d like over your lifetime. You receive an immediate potential tax deduction for every charitable contribution you make, even though you may choose to wait until future years to recommend that grants be made to your favorite causes.
- Simplicity! The calendar year-end paperwork involved with documenting charitable donations for tax compliance will be significantly reduced and DAF management can be accomplished on-line.
- You can establish a named family DAF to involve younger generations in decisions about charitable giving and build a tradition of philanthropy.
- You can take advantage of DAFs during high-income years or after liquidity events to maximize charitable tax deductions, and then make gifts from the DAF over many years to provide sustained support.
Qualified Charitable Distribution (QCD) | Thanks to the Pension Protection Act of 2006, eligible donors may transfer up to $100,000 annually from an IRA directly to charity without including that amount in income. A QCD from an IRA to WCT may be the right gift if:
- You want to make a charitable gift and your IRA holds the largest share of your available assets.
- You are age 73 or older and must take a required minimum distribution (RMD) from your IRA, but you don’t need (or want to pay income tax on) the additional income. Note that you are permitted to make IRA charitable rollover gifts when you turn 70 ½.
- You do not itemize deductions on your income tax return. If you don’t itemize, taking your IRA’s RMD and donating it to WCT, a qualified charity, will increase your taxable income without the benefit of an offsetting deduction. However, the amount of a QCD from your IRA will be removed from your taxable income for the year. Even if you do not itemize, this may reduce the amount of income tax owed.
- You would like to make an additional gift to WCT, but it would not be deductible because of the annual limitation of 60 percent of adjusted gross income (AGI) for charitable contributions. The IRA QCD works as a tax-saving strategy similar to a deduction because it is not included in taxable income.
Whether you elect to utilize these or other mechanisms to support Willistown Conservation Trust, your contributions are deeply appreciated. Thank you for your commitment to protecting our open space, nature preserves and the wildlife and watersheds they sustain.
David L. Unruh serves as a member of the WCT Board of Trustees and is the Senior Vice President of Drexel University’s Office of Institutional Advancement.
