New Age Philanthropy

In the sector of charitable giving a new trend is emerging. This trend pools together the resources of the middle income class and has become for the second largest recipient of charitable funds in the United States behind only the Red Cross. Since the mid 1990's Donor Advised Funds have flourished into a dominant force in philanthropy and continue to grow as more money managers and investors become aware of their simplicity, flexibility, and low cost.

Donor Advised Funds (DAFs) are just that, individuals give money or assets to a charity or sponsorship organization who sets up a Donor Advised Fund account. That account is then invested in options offered by the specific organization that the donor has chosen. From this account, donors can make grants of $50 or more to specific organizations or causes that are important to them. While this seems basic, there are many choices to be made in creating, investing, and continuing this charitable account. But first, I will explain WHY you should consider setting up a DAF if you're looking to make charitable donations.

Simplicity

The first major advantage DAFs have over private foundations is the simplicity of setting up the fund. For donor advised funds, a simple agreement between the sponsoring organization and the donor is all that is needed to create the account. This method is much easier than applying for IRS tax-exempt status, filing all required tax reports, and maintaining compliance with all the rules that apply to charitable foundations.

Low Cost

Another positive aspect of the Donor Advised Fund is the low cost to create it. Needing as little as a $5,000 in initial contributions those who wish to donate even on a modest scale can get involved in charitable giving. Further, grants to individual charities can be made in increments of as little as $50.

Flexibility

Flexibility is the foundation of the Donor Advised Fund. When choosing a specific plan with a sponsorship organization there are many various investment options to select from. The plans range from broad investment choices, where donors are allowed to choose their own investment portfolios- to basic mutual fund choices offered by the sponsor, and finally to the option of pooling together mutual funds to invest. Only rarely are donors offered no investment choice at all but in these situations the sponsoring organization chooses and manages the investment options for the donor.

In the past most donors have contributed through private foundations often set up by the individuals themselves or through a third party. There are many benefits in doing so: up to 30% of cash contributions can be deducted and 20% of all other assets can be written off as well.

However, the up and coming DAF has joined the race and offers even more bang for your buck as well as less hassle than is involved in giving through private foundations. Offering a write off of 50% of initial cash contributions and a 30% write off of other assets contributed, the Donor Advised Fund trumps the private foundation in terms of tax breaks, as well as potentially reducing estate taxes since more of your assets are donated to the fund.

Still Time to Save on 2009 Taxes

Okay, it is well past the end of the year but here are a couple of ways you can still reduce that '09 tax bill.

• If you itemize you can deduct contributions made in January and February 2010 to the Haiti relief efforts on your 2009 return if you like.
• Deductible Traditional IRA contributions
• Self Employed still have time to establish and fund a SEP (Simplified Employee Pension)

Can't Buy Me Love

How much money you have has little impact on your happiness, but it turns out how you spend money can have a profound effect. The AP reports that charitable giving has a big impact on our happiness.

"People who made gifts to others or to charities reported they were happier than folks who didn't share, according to a report in Friday's issue of the journal Science.

Lead researcher Elizabeth W. Dunn, an assistant professor of psychology at the University of British Columbia, said she wasn't surprised that doing something for others made people happy.

But she was struck by how big the effect was and that how people spent money was more important than how much money they had."

You can read the full story here.

Giving Odd Lots To a Good Cause

This months edition of Registered Rep Magazine has an excellent idea for year end tax planning. If you have received odd lots of stock from corporate spin offs, calculating a cost basis can be a real nightmare. The author, Kevin McKinley, suggests gifting those odd lots held more than a year to a charity. You get a deduction for the current market value of the securities if you itemize your return, you eliminate the expense of selling the shares, you eliminate the head ache of calculating the cost basis, and you can help a good cause. Everyone wins. You can read the full article here.

Charitable Donations From Your IRA

If you are over 70 1/2 you know that each year you are required to take money from your IRA whether you need it or not. Good news for those in this group who make charitable contributions - the IRS will allow distributions again in 2007 to be made directly to qualified charities without including the contribution amount in your Adjusted Gross Income.

This could allow more of your itemized deductions that are tied to you AGI to count, like Miscellaneous Expenses (must exceed 2% of AGI) and Medical Expenses (must exceed 7.5% of AGI) or could reduce the taxable amount of your social security benefits.

Bottom line if you must take a required minimum distribution from an IRA and you plan to donate to charity you are probably better off having the donation paid directly from your IRA. As always check with you tax advisor first.

photo courtesy of cohdra@morguefile.com