3 Reasons to Set Up a Donor-Advised Fund to Maximize Your Charitable Tax Deductions

Using donor-advised funds is a more advanced tax strategy that has gotten more popular recently with the introduction of the Tax Cuts and Jobs Act (TCJA) in February 2020. The TCJA nearly doubled the amount of the standard deduction, which makes it less advantageous to itemize deductions such as charitable contributions. For people with a lot of charitable contributions, donor-advised funds are one option to still get a deduction for charitable contributions.

What is a donor-advised fund?

A donor-advised fund (DAF) is a registered 501(c)(3) charitable organization that accepts contributions and generally funds other charitable organizations. While the concept of a donor-advised fund has been around for nearly 100 years, they were typically only used by the ua-wealthy. And while it is true that donor-advised funds are still not going to be useful for the vast majority of people, recent tax law changes have made their use more prevalent.

You can set up a donor-advised fund with most brokerages, including Fidelity, Vanguard, and Bank of America. You can donate cash, securities, or other types of assets to the DAF. The exact list of assets eligible for donation depends on the brokerage. After you have contributed, you can then make charitable contributions from the balance of your account.

You can maximize your charitable tax deductions in one year

One common reason that people set up donor-advised funds is to maximize their charitable tax deductions in a particular tax year. To show why this can be beneficial, I’ll use an example:

Our example family files their taxes married filing jointly and has regular charitable contributions of $20,000 per year. The standard deduction in 2020 for married filing jointly is $24,800. Because their amount of charitable deductions is less than the standard deduction, they may not see any tax benefit from their charitable contributions (depending on their amount of other itemized deductions). In 2021 they again plan to contribute $20,000 to charitable organizations and again are unlikely to see any tax benefit from doing so.

Now consider this same family now decides to set up a donor-advised fund in 2020. They have extra money sitting around in low-interest savings or checking account or in a taxable investment account. So they set up a donor-advised fund in 2020 and fund it with $40,000 in cash, stocks, or other assets. They are eligible to take the full $40,000 as an itemized deduction, even if they only use $20,000 to donate to the charity of their choice. Then in 2021, they can donate the remaining $20,000 to their preferred charity. They will not be able to deduct any charitable contributions in 2021 but can instead take the raised standard deduction amount.

You may be able to deduct the full value of stocks or other investments

Another reason you might want to set up a donor-advised fund is that you may be able to deduct the full value of stocks or other investments. Again, I’ll use an example to help illustrate the point.

Let’s say that you have shares that you purchased for $20,000 that are now worth $50,000. Many charities, especially smaller organizations, are not set up to accept donations of stocks or other investments. So if you want to donate that $50,000 to charity, you may have to liquidate your shares. This will mean that you will have to pay tax on the proceeds.

With a donor-advised fund, you can donate the shares to your fund and deduct the full fair market value of your shares. Then the fund can make the contribution to the charity of your choice.

Donate a wide range of assets

Another benefit to setting up a donor-advised fund is the ability to donate a wide range of different classes of assets. As we mentioned earlier, many charities are not set up in such a way to be able to accept non-cash donations. While the exact list of assets that a donor-advised fund can accept varies by the firm running the fund, it generally will include more types of assets than a typical charity.

Why you might not want to set up a donor-advised fund

While there are plenty of advantages to setting up a donor-advised fund, there are a few things that you might want to watch out for.

  • It’s definitely more complicated than just making charitable contributions on your own. You may find that the tax savings are not worth the extra hassle.
  • On top of the added layer of complexity, most firms with DAFs charge administrative fees that can cut into your rate of return.
  • You may be limited on the charities that you can donate to. Each donor-advised fund typically will have a list of eligible charities. So you may find that a charity that you want to donate to is not available.
  • You also lose control over the funds that you donate – the donation to the fund is irrevocable, meaning once you’ve donated to the fund you cannot get the donation back. While most advisors state that they will donate the money as you direct, they are not legally required to do so.
  • The money in a DAF is invested, so it may lose value. That means that the amount you were hoping to donate may be less than you were anticipating. You also typically have a limited range of investments available for your investment, and those funds also often come with fees.

It’s also important to keep in mind, the annual income tax deduction limits for gifts to donor-advised funds, are 60% of Adjusted Gross Income for contributions of cash, 30% of AGI for contributions of property that would qualify for capital gains tax treatment; 50% of AGI for blended contributions of cash and non-cash assets.

The post 3 Reasons to Set Up a Donor-Advised Fund to Maximize Your Charitable Tax Deductions appeared first on MintLife Blog.

Source: mint.intuit.com

Don’t Get Tricked: Identity Protection Tips You Need

A woman sits on a gray couch with a laptop on her lap, drinking a cup of coffee

The weather is turning, fall is in the air, and Halloween is around the corner—which means it’s National Cybersecurity Awareness Month. How can you ensure October is full of treats while not falling for any scammers’ tricks? By arming yourself with these identity protection tips.

Every American should understand the basics of identity theft protection. According to the most recent report by the Bureau of Justice Statistics, 10% of people 16 and older have been the victim of identity theft. That’s why we’re encouraging people to educate themselves on identity protection tips this autumn. After all, there’s nothing quite as scary as identity fraud!

Here are some identity theft tricks to watch out for and identity security treats to take advantage of.

Trick: Using Your Data to Open New Accounts

According to the FTC, credit card fraud—including opening new credit card accounts—was the most commonly reported form of identity theft in 2019. Thieves can rack up hundreds of dollars’ worth of bills before you know it happened.

Here are a few things to keep in mind when it comes to your cybersecurity to avoid your data being used to open new accounts in your name:

  • Never use the same password across multiple accounts. Switch your passwords up.
  • Never use a password that’s easy to guess. This includes passwords that include your birthday, first or last name, or address.
  • Use passwords that are random combinations of numbers, letters, and symbols.
  • Enable two-factor authentication whenever it’s offered.
  • Don’t share or write down your passwords.
  • Never click on unknown email links or pop-ups on websites.
  • Make sure websites are secure before entering your payment information.
  • Never connect to public Wi-Fi that isn’t secure.
  • Never walk away from your laptop in public places.
  • Enable firewall protection.
  • Monitor your accounts and credit reports for unusual activity.

Treat: Check Your Credit Reports

Identity theft protection starts by being proactive and regularly monitoring your information for suspicious activity. That includes monitoring your credit report.

Did you know that you’re entitled to one free copy of your credit report each year from all three credit reporting agencies? In honor of National Cybersecurity Awareness Month, make October the month that you request your reports and go over them with a fine-toothed comb. Make sure you recognize all the open accounts under your name.

[Note: Through April 2021, you can review your credit reports weekly.]

An added bonus of checking your reports early in the month is that you can give your credit a good once-over before the upcoming holiday shopping season. Unexplained dips in your credit score could be a sign that something is wrong.

When you request your free credit report from the credit bureaus, your report does not come with your credit score—you have to request that separately. Sign up for ExtraCredit to get 28 of your FICO® scores and your credit reports from all three credit bureaus. You’ll also get account monitoring and $1 million identity theft insurance.

Protect Your Identity with ExtraCredit

Trick: Charity Fraud

October also happens to be Breast Cancer Awareness Month, and everywhere you look, pink is on display. With so much national attention on breast cancer, it’s easy to fall for scams that claim to be legitimate charities.

Consumers should also be on the lookout for phony COVID-19 related scams this fall and winter. For example, watch out for fake charities that pretend to provide COVID relief to groups or families but are simply stealing money.

Even worse than handing over money to these heartless fraudsters is that you may have handed over your credit card numbers or other personally identifiable information in the process.

Treat: Know Your Worthy Causes

Before donating to a charitable cause, do your homework. You can use websites such as Charity Navigator, CharityWatch, and the Better Business Bureau’s Wise Giving Alliance to check a charity’s reputation. Additionally, consider contacting your state’s charity regulator to confirm the organization is registered to raise money in your state.

After you’ve verified the status of the charity, consider making donations directly through the national organization. Avoid giving money or financial information directly to someone that reaches out to you through email, phone calls, or door-to-door interactions.

It might be a bit of extra work, but at the end of the day, you can feel good knowing your money is going to support a real cause. If you want to support October’s Breast Cancer Awareness Month, consider donating directly on the national website. An added bonus is that you’ll receive a receipt you can use for tax deduction purposes.

Trick: Tax Refund Fraud

Every year, the Internal Revenue Service announces its “dirty dozen” scams. These are the tax fraud scams the IRS determines to be the most common for the year. The 2020 list includes refund theft. A tax thief gains access to your information, files a fraudulent return in your name before you do, and has the funds paid out them. The only way you find out about it is that your legitimate tax return—the one you submit—is rejected for having already been filed.

Another way individuals fall victim to tax refund fraud is by using an unscrupulous return vendor. Dishonest vendors and ghost preparers steal personal information to file a tax refund and pocket the money or use that information for other types of identity fraud.

It’s unclear what exactly the next round of stimulus legislation will include, but if another stimulus check is included, watch out for attempts to steal your COVID stimulus checks. Remember that the IRS never contacts you via email, social media, or text.

Treat: File Early

It may feel like you just finished filing your 2019 taxes, but it’s never too early to start preparing for next year. While filing your taxes might be the last thing you want to think about this month, it’s crucial to stay on top of your tax return documents so you’re ready to file as early as possible. This is especially true for individuals who have reason to believe that their personal data has already been breached.

Always ensure you work with a reputable tax return vendor. You can look at the vendor’s online reviews before considering them as an option for tax return help.

Additionally, individuals that are paid to assist with or prepare federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns. Always ask for this number before you hire an individual and hand over your personal information.

If you file early, you can beat out someone filing before you and receiving your return first. The earliest you can file is January.

Trick: Social Media Scams

Our social media accounts allow us to stay connected with friends and family. Unfortunately, scammers understand this and have started using social media to commit identity fraud.

There are many variations of social media phishing scams, but the basics are generally that a scammer creates an account to gain your trust and gather personal information from you. For example, many people have their name, birthday, and workplace information on their Facebook or other social media account. Those three things alone could be enough for someone to gain everything else they need to create a credit card application under your name or access your existing accounts.

Treat: Be More Exclusive and Private

Consider taking a quiet October morning to comb through your social media accounts. Start with your followers. Consider deleting everyone you don’t know personally.

If a follower base is important to you, consider another approach. Go through each social profile and scrub any personal details. Change the spelling of your last name slightly, delete your birthday, and remove other personal information, such as place of work. Ultimately, this can reduce the risk of being an easy target for identity fraud.

These core identity protection tips should help you stay safer online. With COVID-19 causing people to feel scared, individuals are more vulnerable to being tricked. Remember that identity fraud happens to millions of people every year, and it’s important to remain vigilant.

Stay Vigilant This Fall

Identity theft can have long-lasting consequences. If you’re recovering from identity fraud or simply unhappy with your credit score, consider signing up for ExtraCredit. ExtraCredit is a five-in-one credit product that provides tools to helps you build, guard, track, reward, and restore your credit.

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The post Don’t Get Tricked: Identity Protection Tips You Need appeared first on Credit.com.

Source: credit.com