In the decades that we’ve been helping support charitable giving, we’ve noticed that donors often leverage tax savings to increase their giving and vice versa. Since tax rules change often and individual tax situations can vary, we recommend consulting IRS resources or a professional tax advisor to learn more about your unique circumstances.1

What to give & when to give it

Many donors who use a DAF for charitable giving are already tax savvy philanthropists. They are well aware of the tax benefits that follow charitable giving. But donors who use a Vanguard Charitable DAF understand that our industry-low fees mean even more dollars for charity now and in the future.

 

The assets chosen to give to charity can be just as important as how much is given. The most strategic philanthropists consider contributing a variety of assets to support their charitable goals.

 

Donating non-cash assets can:

  • Generate significant tax savings
  • Expand charitable impact
  • Provide a strong foundation for long-term charitable giving
  • Help rebalance your portfolio

 

Donating these types of assets is often highly tax-effective and can make a significant impact for the charities you care about. Sometimes donors may not be aware of the types of assets we accept and the charitable advantages they offer. While we welcome donations of cash (check, wire, EBT), we also accept appreciated securities and a variety of complex assets. For a list of assets we accept, visit our complex asset page.

 

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Frequently asked questions

Standard vs. itemized deductions

To receive a charitable tax deduction on your annual income taxes, you must itemize your deductions rather than choosing to take the standard deduction.

In a given year, you may take charitable deductions up to a limit that is calculated according to your Adjusted Gross Income2 (AGI) and the type of asset that you are donating. While AGI limitations are typically set at 60% for cash donations and 30% for donations of appreciated assets, the CARES Act3 increases the limitation for cash contributions to 100% of an individual’s AGI. However, this temporary increase to the AGI limitation excludes giving to private non-operating foundations and supporting organizations, along with any contributions made to establish or maintain DAFs like those held at Vanguard Charitable. To learn more about the CARES Act, click here.

 

Charitable giving that exceeds an individual’s AGI limitation may be carried forward and used over the next five years. This carryforward provision is a helpful tool as you engage in strategic, long-term charitable giving.

Marginal tax rate

In the U.S., taxpayers fall into federal marginal tax brackets based on income, which dictates the amount of federal taxes owed. As income increases, we are pushed into a higher tax bracket and owe a higher tax rate. The marginal tax bracket is the highest tax bracket that applies to you. Your overall tax rate is the “effective tax rate.” It will be lower than the marginal tax rate because you are taxed only on the amount of income that falls into the highest tax bracket.

 

Currently, tax rates can be as low as 10% or as high as 37%, and taxes are tallied according to each bracket you exceed. In general, the higher your marginal tax rate, the more valuable making charitable donations will be, as your charitable deduction will allow you to avoid paying your marginal tax rate5 on the income that you donate. Charitable deductions can also help lower your marginal tax rate by reducing the amount of taxable income or even pushing you back into a lower bracket.

 

2021 tax brackets (for taxes due April 15, 2022)4

RateFor unmarried individuals, taxable income overFor married individuals filing joint returns, taxable income overFor heads of households, taxable income over
10%$0$0$0
12%$9,950$19,900$14,200
22%$40,525$81,050$54,200
24%$86,375$172,750$86,350
32%$164,925$329,850$164,900
35%$209,425$418,850$209,400
37%$523,600$628,300$523,600

 

We can’t talk about donating charitable assets without discussing the capital gains tax. A capital gains tax is a tax applied on the profit made from selling certain types of assets. A capital gain is calculated by subtracting the original cost of the asset from the total sale price.

 

The capital gain, or the profit, is assessed a tax when you sell the asset. The amount of tax you pay can vary. It may depend on how long the asset was held, if it’s a charitable donation, the fair market value of the asset, and its cost basis. Some of the more common assets subject to this tax are stocks, bonds, real estate, private equity, and other appreciated assets.

 

Short-term vs. long-term capital gains

Because the amount of tax depends on how long you’ve held the asset, capital gains are classified as either long-term (held for more than one year) or short-term (held for a year or less).

 

Short-term capital gains are considered ordinary income and are taxed based on your marginal tax rate5, which can be as high as 37%. Long-term capital gains are most often a flat rate of 0%, 15% or 20%. Holding on to an asset longer than a year almost always results in a lower capital gains tax.

 

Long-term capital gains tax rates for the 2021 tax year4

Filing Status0% Rate15% Rate20% Rate
SingleUp to $40,400$40,401 – $445,850Over $445,850
Married filing jointlyUp to $80,800$80,801 – $501,600Over $501,600
Married filing separatelyUp to $40,400$40,401 – $250,800Over $250,800
Head of householdUp to $54,100$54,101 – $473,750Over $473,750

Contributing assets to your DAF account can help off-set capital gains taxes. Donating appreciated assets (held for longer than one year) gives you an added advantage because you gain a deduction for the full fair market value (FMV) of the asset but neither you nor the charity that receives the asset is taxed on the appreciation because the charity is tax-exempt. It’s a double tax benefit that would not be available if you were donating cash. Mixing and matching the assets you donate can maximize your giving—and your tax benefits. Learn more about the advantages of donating appreciated securities and complex assets.

The FMV is the price at which your asset should sell in the current market. Cost basis is the original value of an asset, usually the purchase price. When calculating cost basis, the amount may be adjusted for stock splits, dividends, and return of capital distributions.

 

Both FMV and cost basis are used by the IRS to determine capital gains, which is the difference between the asset's cost basis and the FMV at the time of liquidation. These measures are also used when an asset is donated to charity to determine the correct amount of tax deduction. Donors may be asked to provide an independent estimate for the value of the asset, which is known as the appraised value.

Including your DAF account in your estate planning means you can remove assets from your estate before the total value is taxed. If your estate plan makes gifts to charities via your DAF account, the estate could be taxed less. Because charitable tax strategies for estate planning can be among the most complex, be sure to consult an estate planner or other qualified expert.

Tax-free growth of invested charitable assets

When assets are contributed to a DAF account, the funds can only be used for charitable giving and those funds are invested for tax-free growth. This is a very appealing option for charitable-minded, investment-focused donors who want to make an impact. When the charitable dollars are invested for tax-free growth, there may be more to give to the causes you care about. This allows for both granting and growing. It’s this growth—combined with our industry-low fees—that makes the difference.

1Please note: The information provided here is not intended to be relied upon in lieu of tax or legal advice. Consult with a tax advisor or attorney for information related to your specific situation.

2AGI: Adjusted gross income is an individual's total gross income minus specific deductions. AGI is used to calculate taxable income, which is AGI minus allowances for personal exemptions and itemized deductions.

3Please note that the CARES Act is currently set to expire at the end of 2021.

4Internal Revenue Service

5Internal Revenue Service. Publication 550: Investment Income and Expenses, Page 43. Accessed Jan. 13, 2021.

 

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