Donor-Advised Funds: A Strategic Approach for CPAs and Clients This Giving Season

By: Nik Fahrer, Forvis Mazars and Endaoment

As we approach year-end tax planning, CPAs are seeking effective strategies to help clients reach their philanthropic and financial goals.

One powerful yet underutilized tool for tax-efficient giving is the donor-advised fund (DAF). A DAF is a giving vehicle that allows clients to donate assets—be it crypto, stocks, private equity, RSUs, or other holdings—into a fund for charitable distribution over time.

Clients receive an immediate tax deduction upon contribution but retain the flexibility to advise on the investment decisions within the fund and can also advise on how their donated capital is distributed to nonprofits—either now or in the future. This “donate now, distribute later” approach not only increases the tax benefits but also grants clients the ability to strategically think about the causes that matter most to them.

There’s also an immediate tax benefit to donating highly appreciated assets, like stock or crypto, into a DAF. Nik Fahrer, Director of Blockchain & Digital Assets Practice Leader at Forvis Mazars, shares more.

How can DAFs enhance year-end tax planning for CPAs and their clients?

Every taxpayer’s situation is unique, so consulting a tax professional is recommended for tailoring strategies to your situation. Some year-end strategies to consider discussing with your tax professional include:

• Reducing taxable income: Qualified charitable donations, an itemized deduction, can reduce taxable income dollar for dollar. However, total itemized deductions must exceed the standard deduction for the taxpayer to see the tax benefit.

  • Take, for example, married filing joint taxpayers with $500,000 in adjusted gross income (AGI). The taxpayers also have $10,000 in state and local taxes, and $20,000 in qualified home mortgage interest. Both the state and local taxes plus the qualified home mortgage interest are itemized deductions totaling $30,000, exceeding the standard deduction.

    Before a qualified charitable donation, taxpayers’ taxable income before considering the qualified business income deduction would be $470,000. A qualified charitable donation of $50,000 of appreciated property would generally reduce the taxpayers’ taxable income to $420,000, subject to certain limitations.

• Avoiding capital gains on appreciated property: Appreciated assets such as cryptocurrencies or stock will typically trigger a capital gain if sold or converted, leaving taxpayers with a tax bill to pay. However, if taxpayers instead donate the appreciated property directly to a qualified donor advised fund or qualified charitable organization, they may be able to deduct the entire fair market value of the appreciated asset and avoid triggering a capital gain.

• Consider an example of a taxpayer in the 35% tax bracket donating $20,000 of appreciated stock versus donating post-sale proceeds of $20,000.

  • Donating Post-Sale Proceeds
    Income Tax Deduction: $20,000*
    Income Tax Savings: $3,240**

  • Donating Appreciated Stock
    Income Tax Deduction: $20,000*
    Income Tax Savings: $7,000

  *Assuming $0 cost basis
  **20,000 x 35% less capital gain tax paid of $3,000 less net investment income tax paid of $760.

• Charitable bunching: Charitable bunching is a strategy in which taxpayers bunch together their qualified charitable donations into one year. This strategy usually helps taxpayers exceed the standard deduction. As mentioned in the “reducing taxable income” bullet point, total itemized deductions must exceed the standard deduction for the taxpayer to capture the tax benefit of a qualified charitable donation.

  • For example, a taxpayer considering a charitable donation of $25,000 in year 1 and $15,000 in year 2 may donate $40,000 in year 1 in an effort to exceed the standard deduction in year 1. The standard deduction in 2024 is $14,600 for single taxpayers and $29,200 for married filing joint taxpayers.

What about digital assets? Can I really donate any type of cryptocurrency or NFT?

It depends. Practically speaking, taxpayers will need to work with a donor advised fund administrator or qualified charitable organizations that are willing to accept your cryptocurrency or NFT (cough, cough, for example: Endaoment).

If you can overcome that hurdle, Internal Revenue Code (IRC) section 170(f)(11) generally requires a qualified appraisal for property donations (contributions) in excess of $5,000. Finding a qualified appraiser for cryptocurrencies and NFTs is a unique skillset, so it may be prudent to find a qualified appraiser in advance of the donation. Some examples may include, but are not limited to Charitable Solutions, Stout, or Teknos Associates.

What documentation around charitable giving does a client need to fill out when filing their taxes?

Once again, it depends. The filing requirements usually depend on the amount of the donation.

• For individual taxpayers, generally if the property donation does not exceed:

  • $499

    • Keep in your records a standard non-cash receipt, which generally means a contemporaneous written acknowledgment from the charitable organization when the value exceeds $250.

    • Complete the appropriate section on Schedule A.

  • $4,999

    • Keep in your records a standard non-cash receipt, which generally means a contemporaneous written acknowledgment from the charitable organization when the value exceeds $250.

    • Complete Form 8283 and the appropriate section on Schedule A.

      • Planning note: Generally, a donation above this amount will require a qualified appraisal.

  • $499,999

    • Keep in your records a standard non-cash receipt, which generally means a contemporaneous written acknowledgment from the charitable organization when the value exceeds $250.

    • Complete Form 8283 and the appropriate section on Schedule A.

    • Receive a written qualified appraisal by a qualified appraiser and keep in your records.

  • $500,000 or more

    • Keep in your records a standard non-cash receipt, which generally means a contemporaneous written acknowledgment from the charitable organization when the value exceeds $250.

    • Complete Form 8283 and the appropriate section on Schedule A.

    • Receive a written qualified appraisal by a qualified appraiser and attach to the tax return.

Why should taxpayers consider DAFs in their gifting strategy?

Contributions to a donor advised fund can provide additional flexibility to taxpayers while offering an immediate tax deduction. Typically, taxpayers can donate property such as cryptocurrency, stocks, private business interests, or cash to a donor advised fund and advise on how the assets are distributed to various qualified charitable organizations, potentially at a later date.

While the taxpayer is advising on which qualified charitable organization to support, the assets can potentially grow, making even more money available for the qualified charitable organizations.

The end of 2024 is quickly approaching. What can I do to help my client imminently?

Set up a year-end tax planning call with your clients. Ask questions about their year-to-date tax situation. This could lead to additional tax planning strategy discussions. Whether clients are considering significant charitable donations or planning for long-term legacy, DAFs offer unique flexibility and tax benefits.

Endaoment’s donor-advised fund offers a unique giving experience—aligning values among wealth managers, CPAs, clients, and nonprofits. Clients can invest idle capital in both traditional and digital assets, bringing together risk-on and risk-off options. This flexibility helps to ensure clients can tailor their DAF investments to match both their financial and philanthropic goals.

Forvis Mazars delivers tax, assurance, and accounting advisory services to individuals, public, and private entities of various sizes. Our tax team offers extensive experience and skilled professionals to help align with your objectives.

For people looking to give before the end of 2024, open a DAF with Endaoment—or transfer your existing DAF to us—and give the gift of giving this holiday and tax season. Endaoment does not provide financial or tax advice. Please speak with your tax professional on your specific tax obligation and situation.

About Nik Fahrer

Nik is the leader of the digital asset practice at Forvis Mazars and volunteers his time as a member of the AICPA Digital Asset Tax Task Force. Nik is a frequent contributor of digital asset thought leadership and public speaking opportunities and is a Bloomberg published author. He also provides sophisticated income tax compliance, consulting, and planning services to multistate businesses. As a part of the AICPA Digital Asset Tax Task Force, Nik has been instrumental in advocacy efforts towards digital asset tax guidance.

Nik is a member of the American Institute of CPAs while maintaining active CPA licenses in Colorado, Indiana, and Texas.

He is a graduate of University of Evansville, Indiana, with B.S. degrees in accounting and management information systems.