Religious Giving Through Donor-Advised Funds

Many religious people of all faiths demonstrate their devotion through donations. Some Christians pay a 10% tithe on income, some Muslims pay 2.5% Zakat on all accumulated wealth, and some Buddhists and Hindus give Dāna, which has no specified amount. In the United States, people donated $125 billion in 2018 to religion, representing 29% of total charitable giving that year.

You may have religious clients who are considering or already practicing religious giving. To maximize the tax benefits to your client for these charitable gifts, you should help your client set up a donor-advised fund (DAF) for religious giving. This article will explain the benefits of religious giving through a DAF compared to giving directly to the nonprofit for a church or religion.

What are donor-advised funds?

A DAF is an account at a nonprofit sponsoring organization (DAF host) where an individual can make a charitable gift to receive an immediate tax deduction and subsequently advise the host in disbursing charitable gifts over time. DAF hosts focus on the accounting and legality of contributions distributed out of the DAF, enabling the donor to decide where to give money.

What are the benefits of using a DAF for religious giving?

Religious giving through a DAF provides major tax benefits, especially compared to direct giving to churches or religious nonprofits. DAFs create tax reductions in the following areas:

• Taxable income in the year of the donation
• Aggregate taxable income for multiple years of donations (“charitable bunching”)
• Capital gains before the donation
• Capital gains after the donation

Taxable income in the year of the donation

Donations to a DAF can be deducted from income tax in a year for

• Up to 60% of Annual Gross Income (AGI) for donated cash
• Up to 30% of AGI for donated appreciated assets

Any donations that exceed the respective AGI limits can be rolled over to the next year(s). For example, if a person whose income was $1M donated $700K in cash, they could deduct $600K from AGI that year and $100K the following year.

Aggregate taxable income for multiple years of donations (“charitable bunching”)

When religious giving is regular, giving in DAFs takes advantage of the annual standard deduction to reduce a person’s tax burden over multiple years. By combining several years of donation into one year in a DAF, a person can donate the same amount to their religion each year, but take a larger tax deduction in the first year and then receive the benefits of the full standard deduction in future years. This phenomenon is known as “charitable bunching”. The following chart gives an example of charitable bunching:

Capital gains before the donation

Appreciated assets donated to charities or charitable vehicles are not required to pay tax on the asset’s capital gains. DAF hosts are able to accept all appreciated assets, while nonprofits for religious groups may not accept some types of appreciated assets.

Capital gains after the donation

DAFs come with the added tax benefit of accruing tax-free capital gains in the time before funds are disbursed; your client might donate $100K in a DAF for religious giving and ultimately give a total of $120K as funds grow and are gradually deployed.

How can I set up a DAF for my client’s religious giving?

To enable your client to realize the benefits of a DAF in their religious giving, you need to decide where to host the DAF. Consider selecting an organization that will help your client maximize their impact and streamlines DAF setup and management for you.

The UI Triple DAF

University Impact’s Triple DAF is the best-in-class DAF offering in both the impact it creates for charitable beneficiaries and the simple, easy administration it provides for donors and advisors.

The three core benefits of the UI Triple DAF are as follows:

1. Tax Deduction — Contributions qualify for charitable tax deductions
2. Personalized Strategy — UI actively curates impact investment and grant opportunities for clients based on their impact, geographic, and investment preferences. UI serves as your client’s personal team, helping donors to find and fund the most impactful organizations worldwide. UI also performs financial and impact due diligence for donors before capital is deployed and shares impact reports with donors after capital is deployed.
3. Empowering Students — UI uses administrative fees to provide undergraduate and graduate students across the globe an immersive, hands-on learning experience in impact investing and philanthropy to enable the next generation of philanthropists and impact investors.

Contact us through contact@uitripledaf.org or start a DAF for your clients using our simple sign-up form today.