Lisa Greene-Lewis, TurboTax expert and certified public accountant, explains the tax advantages of creating a donor-advised fund to make charitable contributions.
Watch the video above or read the transcript below.
Tracy Byrnes: If you have charitable inclinations, there are many things you could do. But one of the really cool things that a lot of people miss is donor advised funds. So what are they and why do you need one? Lisa Greene-Lewis, TurboTax expert and CPA, is here with us right now.
It seems like it's something only the rich have, but anyone could open one. So tell us, what exactly is a donor-advised fund?
Lisa Greene-Lewis: Yes, a donor-advised fund is a fund where you can make charitable contributions to a fund, and you can make them to various charities that you love and like. And you can get a deduction for those charitable contributions.
Tracy Byrnes: So you create this background. It's your personal little fund, let's call it, and you put money into it. When do you get the deduction, when do you put the money in?
Lisa Greene-Lewis: You will then be able to take the deduction in the year you contribute to that fund. So it doesn't even matter if those funds have been distributed to charities, it just happens when the money is put into the fund.
Tracy Byrnes: Yeah, so if you had a really good year or something, you got some money, you open it up (they call it DAF, like they say in the insider lingo) and let's say you frontload it with $10,000. You can take that $10,000 the year you face it.
Lisa Greene-Lewis: Well, that's the advantage of this, not having to wait until the funds are distributed or when it is decided on the charities and when that money will be distributed.
Tracy Byrnes: Let's talk about how the money is distributed then. There are rules? Does it have to be spread out over a certain period of time? Does it matter who it is addressed to?
Lisa Greene-Lewis: So when you create the fund, you can decide which charities you want it to go to. Now, once you put the money in the fund, the financial institution owns it. And they distribute the money and decide on that.
Tracy Byrnes: So, are there any downsides to opening a donor-advised fund?
Lisa Greene-Lewis: I don't see any drawback because you can contribute to the fund and make the deduction even before the money is distributed. And if you decide to do this, TurboTax will guide you in reporting your donor advised fund.
Tracy Byrnes: Yeah, it's a great idea and I think it empowers you a little bit because you can direct where your contributions go and get a big charitable deduction in the year you fund them. TurboTax Expert Lisa Greene-Lewis, thank you for bringing this to our attention.
Lisa Greene-Lewis: Thanks for having me.
