Get a Tax Break By Doing Good
Can't decide which charity to give to this year? Consider a donor-advised fund.

Editor's note: This story has been updated.
With so many organizations in need of donations in this recession, you may find it difficult to decide which charities to give to this year. You don't want to rush your decision, but you don't want to let a valuable tax break slip by, either.
There is a way to get a deduction now and make your giving decision on your own timetable: a donor-advised fund. By setting up and contributing to a donor-advised fund by the end of the year, you may deduct your contribution on your 2009 tax return (as long as you itemize your deductions) and take your time deciding how to allocate your gift. (Donor-advised funds are not, however, eligible recipients of the new, temporary provision that allows seniors to direct all or part of their required minimum distribution from an IRA -- up to $100,000 -- to a charity tax-free in 2009.)

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Row 0 - Cell 0 | 5 Ways to Check Out a Charity |
Row 1 - Cell 0 | A Dozen Creative Donations |
Row 2 - Cell 0 | Teaching Kids the Value of Giving |
If you sold a business, received a lump-sum pension payout, actually made money in the stock market or had any sort of windfall this year, setting up an account with a donor-advised fund now will help offset your increase in income. Then, if you find you are pinching pennies more next year -- considering that the recession is expected to drag on -- you'll already have the money set aside to make charitable donations.
Sarah Libbey, president of the Fidelity Charitable Gift fund, says that "a donor-advised fund can be a reserve account even in a down market." That is, you can contribute to a donor-advised fund in good years and have money available to give even in lean years, such as this one, or in retirement, when your income will likely decrease. "When you have a giving-account balance at the ready, you are able to plan your giving and feel more organized," Libbey says. According to Libbey, 70% of Fidelity's clients say they donate more to charity because they have a giving account.
You don't have to be a millionaire (or even close) to set up an account. Most donor-advised funds -- which are run by financial-services firms, community foundations and educational institutions -- require a minimum investment of $5,000 to $25,000, with some community-foundation-sponsored funds requiring as little as $1,000. Contributions may be in the form of cash, stocks, bonds, mutual funds, restricted stock and even real estate.
And opening an account is easy. Fidelity, which sponsors the largest national donor-advised fund, lets you open an account online. Other financial-services firms, such as Vanguard, Charles Schwab and T. Rowe Price, and some community foundations require you to mail in a form that you can download from their Web sites.
How it works. You make an irrevocable contribution of cash or appreciated assets to your donor-advised fund. The gift is tax-deductible at the time of your contribution, and you can recommend (but not require) the fund to direct donations to your designated charity at any time throughout the year. You usually get a choice of how to invest your contributions, and the value of your fund will fluctuate based on how your investments perform. Fees and expenses vary.
The benefits. You don't have to wait until you actually make a grant through the fund to get a tax benefit. For cash contributions to the fund, you may deduct the equivalent of up to 50% of your adjusted gross income; for securities you've held a year or more, you may deduct up to 30% of your AGI.
People who contribute appreciated assets to a donor-advised fund get the biggest benefit. Instead of selling stock, paying capital-gains taxes on the proceeds and then handing the cash over to a charity, you can escape the tax bill and write off the full market value of the stock, even if it is worth substantially more than you paid for it. And if you plan on giving to several organizations, it's easier to give the shares to the fund and have it dole out the cash, says Tom Carstens, a partner with Lenox Advisors, a fee-based financial-services firm in New York City.
Another benefit is that you are not required to give away a percentage of your account's assets to charity each year. However, most funds have minimum grant requirements (at least $50) each time you do make a donation.
With a donor-advised fund, you'll have a record of all your giving -- a big plus considering strict new tax rules require documentation for all charitable contributions. Your donation may be anonymous or accompanied by a letter saying that you authorized it. Also, many accounts allow more than one person to contribute and make grant recommendations, so family members may get involved.
The drawbacks. Your giving is limited to IRS-approved tax-exempt charities -- otherwise known as 501(c)(3) organizations -- so you can't make grants to, say, scholarship funds or individuals. Your investment choices within your account are usually limited. However, large accounts sometimes get more investment options. For example, if you have at least $1 million in an account with the Fidelity Charitable Gift fund, you may select outside investments.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Award-winning journalist, speaker, family finance expert, and author of Mom and Dad, We Need to Talk.
Cameron Huddleston wrote the daily "Kip Tips" column for Kiplinger.com. She joined Kiplinger in 2001 after graduating from American University with an MA in economic journalism.
-
Stock Market Today: Have We Seen the Bottom for Stocks?
Solid first-quarter earnings suggest fundamentals remain solid, and recent price action is encouraging too.
By David Dittman
-
Is the GOP Secretly Planning to Raise Taxes on the Rich?
Tax Reform As high-stakes tax reform talks resume on Capitol Hill, questions are swirling about what Republicans and President Trump will do.
By Kelley R. Taylor
-
Trump’s Tax Cut Risks Your SNAP, Medicaid Benefits
Tax Cuts The GOP budget blueprint could slash lifesaving programs for millions of U.S. households.
By Gabriella Cruz-Martínez
-
Missed Tax Day? Nearly One Million Taxpayers Still Can File and Claim Valuable Tax Refunds
Tax Refunds As many as one million taxpayers could be missing out on a significant tax refund.
By Gabriella Cruz-Martínez
-
Which Generation Pays the Most Tax in the US?
Tax Burden Polls show that most people feel like taxes are unfair. But which age group bears the brunt of the tax burden in the United States?
By Kelley R. Taylor
-
How the Trump Harvard IRS Tax Threat Could Impact You
Tax Law Trump's latest higher education showdown raises fundamental questions that could reach beyond Harvard's nonprofit tax status.
By Kelley R. Taylor
-
Tax Day 2025: Don’t Miss These Freebies, Food Deals and Discounts
Tax Day You can score some sweet deals on April 15 in some select restaurants like Burger King, Shake Shack, and more.
By Gabriella Cruz-Martínez
-
Tax Time: Does Your Kid Influencer Owe Taxes?
State Tax Some minors are making big money on social media. Here’s how to know if they need to file taxes.
By Gabriella Cruz-Martínez
-
Did Florida’s Chance at $1,000 in Property Tax Rebates Vanish?
State Taxes The Florida Legislature bypassed Gov. Ron DeSantis’ wish to cut property taxes and instead voted to lower the state’s sales tax.
By Gabriella Cruz-Martínez
-
How Caregivers for Adults Can Save on Taxes in 2025
Tax Breaks Caring for your parent or spouse can be stressful, but the IRS offers tax breaks for qualifying taxpayers. Here they are.
By Kate Schubel