When it comes to charitable giving, it often seems like the world’s wealthiest individuals have it figured out. With so many assets to manage, these donors know how to support charitable causes while capitalizing on the tax benefits of the giving process, right? Unfortunately, not all get it right.
Earlier this month, an article in Forbes announced that Warren Buffett is donating $3.6 billion of his Berkshire Hathaway stock to charity. It also offered advice on how other donors could maximize their giving by following in Buffett’s footsteps. The problem? Buffett is primarily giving the stock to private foundations. Consequently, he is missing out on significant tax benefits he could receive if he utilized a donor advised fund (DAF) instead.
There are important differences, when it comes to tax benefits, that all donors and advisors should consider.
Donor Advised Funds
- Cash gifts can be deductible up to 60% of adjusted gross income (AGI),
- Publicly traded securities can be deductible up to 30% of AGI,
- For other appreciated assets (non-cash), the fair market value of a gift can be deductible up to 30% of AGI, and
- No excise taxes.
- Cash gifts can only be deductible up to 30% of AGI,
- Publicly traded securities can be deductible up to 20% of AGI,
- For other appreciated assets (non-cash), the lesser of a gift’s fair market value or the donor’s basis in an asset can be deductible up to 20% of AGI.
Charitable giving is far more important than the tax benefits, regardless of the giving option a donor chooses. However, it is crucial to understand the different tax consequences of each giving vehicle—especially when giving such a large donation. By using a DAF, a donor can have more significant tax savings, thus allowing, even more, to be given to charity, which in Buffett’s scenario, maybe could lead to millions or billions more to charity!
Check out our Charitable Options Comparison Guide for more information.