By Loreen Huddleston, CPA
Philanthropy is very personal. In my 30+ years as a CPA, I have worked with many different kinds of clients and I have seen that each client’s situation is unique. Some people are motivated by the causes they love; some are primarily looking for a solution for their tax situation; and some have not considered the topic of philanthropy until I raise it with them. From year to year the same client’s financial circumstances can change or they may get involved with a new charity that tugs at their heartstrings. Providing my clients with various options for fulfilling their philanthropic goals, while also working to reduce their tax burden, is vital in my business, since they see me as a resource and trust my opinion.
One flexible tool that I often recommend is a Donor Advised Fund (DAF). These funds are a great tool for clients who face income fluctuations from year to year or are nearing their retirement years when their taxable income will dramatically decrease. In years when there is high income and they are paying tax at a higher rate, a DAF can be utilized to “park” charitable donations for later use. This tactic to maximize the benefit of itemized deductions, often called “bunching,” is not new. It allows for tax deductions to be increased in one year to allow for itemizing deductions with the expectation they will claim the standard deduction in a following year. This has become more challenging after the dramatic increases in the standard deduction in the last two years.
A DAF provides a great opportunity for a person to increase their itemized deductions by making a large charitable contribution in one or more years. They can claim a tax deduction in the year the contribution is made, then later grant the money from their DAF to the charities they love with no time restrictions. This eases their stress, because they do not have to choose the charities when the contribution is made. They can take their time, do their research, and use their DAF to fund their philanthropy for years to come, instead of donating one lump sum to a particular charity. The charitable deduction has already been claimed.
Donor Advised Funds are convenient. Some clients like the simplicity of making donations to a DAF each year, claim a single charitable contribution deduction on their tax return, then make their multitude of charitable contributions from the DAF. Some people like to make donations anonymously, so they appreciate that through a DAF they do not make direct contributions to organizations.
A great tax planning tool is to donate appreciated stock or complex assets to a DAF. This avoids the tax on unrealized capital gains while enabling the taxpayer to claim the deduction for the current value of the stock. Contributing stock or complex assets to a DAF can also benefit smaller charities which may not have the capability to process those types of gifts.
My clients always appreciate when I offer unique solutions that they may not have thought of themselves. I suggest a Donor Advised Fund when it is appropriate for my clients’ needs. Most often I suggest a DAF with the Catholic Community Foundation. The Foundation offers a high-tech, high-touch model that my clients find appealing. The Foundation is locally based and they offer personal attention to each of their DAF holders that larger entities cannot match. If I see that a client has given to Catholic organizations in the past, I suggest the Catholic Community Foundation as an option for a DAF since they uphold Catholic values in their investments and grant making. I also let them know that DAFs from the Foundation can grant to non-Catholic organizations all over the U.S., so the Foundation is not exclusive to Catholic clients.
I get to know my clients and their needs, and I help them find solutions that fit their unique situations. A Donor Advised Fund is a flexible tool that I find myself recommending often, which adds significant value for my clients. I feel good about recommending the Catholic Community Foundation as a resource for my clients because I know they will help my clients fulfill their philanthropic goals and be a true partner in their philanthropy.
Loreen Huddleston has operated her firm, Loreen E. Huddleston, CPA, now Loreen E Huddleston CPA Accountancy Corp, for 32 years. Her office is located in downtown Los Gatos and she has extensive experience in accounting, income tax preparation and planning. The focus of Loreen’s practice is assisting individuals, small businesses and trusts to not only minimize income taxes through strategic planning, but to maximize long term financial well-being. Loreen accomplishes this by leveraging her vast experience preparing income tax returns, financial forecasts, business plans and budgets for individuals and small businesses.