Render Unto Caesar: Donor Advised Funds
Matthew, Mark, and Luke all report that Jesus said, “Render unto Caesar what is Caesar’s, and unto God what is God’s.” Notice that the guidance does not say give generously to Caesar, nor does it say give any more than Caesar requires or mandates. If we interpret Caesar to be the US government, or more specifically the IRS, these verses seem to say pay what the law requires, but not a nickel more, because that belongs to God, not Caesar. If the tax law is written so that there are options allowing us to lawfully pay less, shouldn’t we, as God’s stewards, do that? This is the third in a series of brief articles that will each discuss a way to take advantage of the tax laws to minimize what we render unto Caesar (US government) so that more can be given to God.
Are you in a higher income bracket and therefore higher tax bracket? Do you have stocks in a brokerage account? Has your broker ever warned you that you need to close out a position because the market doesn’t look good for that stock anymore? Perhaps it is a bunch of stocks you bought early in the year, made great gains and now need to dump them due to market changes. Stocks held less than a year do not qualify for capital gains tax rates. Short-term (less than one year) gains are taxed as ordinary income. Such a case might be big dollar value that could change your tax rate because the short-term gains raise your taxable income so much. Or maybe you bought a stock like Amazon or Apple when it was cheap and now realize you will have tremendous capital gains if you sell it. If those amounts are more than you plan to donate to your favorite charities in a single year, there is a potential solution.
The Donor Advised Fund (DAF) allows you to transfer those appreciated assets into a special DAF account. With this account, you receive full credit for the charitable contribution the year you donate, but you can spread out giving the money to your church or another charity over several years. You merely request a check be sent to your church. For example, you have $50,000 in potential short-term stock gains. You transfer that stock to your DAF, and then send your $12,000 pledge to your church each year for the next three years via checks sent to the church. You can also have checks sent to other charities you support, including your alma mater. Because you got credit for the $50,000 contribution to the DAF when you created it, you will not be able to deduct the money sent from the DAF in subsequent years because you already received full credit for the large initial donation.
Another option with a DAF is some families donate $15,000 of stock per year to their church. Since they do not have enough contributions to exceed the standard deduction in one year, they cannot itemize that large contribution. However, if they give $30,000 in one year, say in December, to the DAF, they can still give $15,000 to the church each year but can itemize the full deduction to the DAF in the year they gave. Please note, currently a DAF cannot be funded with RMDs (required minimum distributions) from retirement accounts.
If your church does not have a brokerage account and therefore cannot accept stock donations, the Foundation can assist with stock transfers. We provide this service with no fee or commission and send the full value to the church. The Foundation also offers DAF accounts which benefit from the normal low Foundation fees associated with our securities accounts. DAF accounts with the Foundation are also required to have at least 50% of all donations you direct go to some type of United Methodist cause. This could be your church, your children’s UMC if they worship elsewhere, UMCOR, a United Methodist seminary or college, etc.
If your church or Finance Committee would like to learn more about such tax-efficient giving, please contact us. We offer to meet with a team or even hold an open session with interested church members and present how these options to give more tax efficiently can be designed. As more and more people own stocks and mutual funds or have IRAs and 401(k) type accounts, as good stewards, we want to provide them a way to legally give more to God and less to Caesar.
(This article discusses certain aspects of the tax code but it is not official tax advice. For specific tax questions or issues you should always consult a qualified tax professional.)
By Brad Duty
Foundation Services Advisor
Image by Michael Fenton, courtesy of Unsplash
