Private foundations and donor-advised funds are among the most popular charitable vehicles to help organize and formalize one’s charitable giving. Both enable advantaged asset growth and provide a tax deduction in the year of contribution.
Donor-advised funds are frequently promoted as the better wealth management solution because they o er higher tax deduction limitations. In practice, however, these higher limitations may be less advantageous than they appear on paper.
Many individuals do not reach the Adjusted Gross Income (AGI) limits on tax deductions. However, when they do:
- Contributions to private foundations and donor-advised funds that exceed the respective annual limits can be carried over in each of the next five years until used up.
- Contributions can be made to both a private foundation and to a public charity in a single year.
- If the maximum 30% AGI limit of cash contributions to the foundation is reached, additional cash contributions of up to 20% AGI can be made directly to one or more public charities, including donor-advised funds.
As you review the chart on the next page, note that the allowable income tax deduction for a gift to a qualifying charitable organization depends on a number of different factors, including the deductible amount, and the AGI percentage cap.
1. These columns reflect the maximum extent of a contributor’s adjusted gross income that may be reduced by such charitable contribution in a given year. Please note that to qualify for the 60% of AGI deduction, all contributions to public charities for the year must be cash. The cap is 50% when it’s a combination of cash and non-cash contributions.
2. These columns reflect the amount that is eligible to be deducted.
3. Long term capital gain assets are those that are held (or deemed held) for more than one year, the sale of which, at fair market value, would yield long-term capital gain.
4. Short-term capital gain assets are those that are held for exactly one year or less, the sale of which, at fair market value, would yield short-term capital gain.
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