Tax Savings for High Income Earners
There are four initial ways that high income earners could benefit from using a donor advised fund (DAF) to lessen their tax burden:
1. Income Tax: You receive an immediate income tax deduction in the year you contribute to your DAF. Since AEF is a public charity, contributions immediately qualify for maximum income tax benefits. The IRS does mandate some limitations, depending upon your adjusted gross income (AGI):
- Deduction for cash – up to 60 % of AGI.
- Deduction for securities and other appreciated assets – up to 30 % of AGI.
- There is a five-year carry-forward for unused deductions.
2. Capital Gains Tax: You will incur no capital gains tax on gifts of appreciated assets (i.e. securities, real estate, other illiquid assets.)
3. Estate Tax: Your DAF will not be subject to estate taxes.
4. Alternative Minimum Tax (AMT): If you are subject to alternative minimum tax (AMT), your contribution will reduce your AMT impact.
Additionally, the investments that exist within a donor advised fund can appreciate tax-free. This frees the donor from further tax liability while providing additional potential assets to use for charitable purposes.
Other Tax Considerations
Donors can deduct the full market value of certain contributed assets, subject to the AGI limitations listed above. These assets include:
- Closely held stock
- Real estate
Note: The information provided herein is for informational purposes only and should not be interpreted to constitute legal and/or tax advice. Donors should consult their legal and tax advisors regarding their specific situations.
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