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Tax Deduction Limits for Donor-Advised Fund Contributions

The amount you can deduct from your taxes for DAF contributons depends on several factors.
Steven Aguiar
August 16, 2023

At Givepact, we believe in the harmonious blend of financial well-being and social responsibility. We are committed to facilitating your philanthropic endeavors by offering a platform that smoothly integrates cash and cryptocurrency donations into donor-advised funds (DAFs). Today, we aim to guide you through the tax deduction limits applicable to contributions made to a DAF at Givepact.

The Power of Donor-Advised Funds

A donor-advised fund is a philanthropic tool that enables you to receive immediate tax benefits for your contributions while retaining the flexibility to recommend grants to your favorite causes over time. DAFs offer a convenient and tax-efficient approach to manage charitable giving, yielding significant advan tages over making direct donations to individual charities. (For more on donor-advised funds, read our comprehensive guide.)

Understanding the Tax Implications with Givepact

The tax benefits provided by DAF contributions are recognized and governed by the Internal Revenue Service (IRS), leading to potential tax savings for you. At Givepact, we provide a platform for you to optimize these benefits, whether you're contributing cash or cryptocurrency. The amount of tax deduction you can claim hinges on the type of asset you're contributing and your Adjusted Gross Income (AGI):

  1. Cash contributions: The IRS permits deductions of up to 60% of your AGI for cash contributions to a DAF.
  2. Cryptocurrency: For contributions of cryptocurrencies like Bitcoin and Ethereum that have been held for more than a year, you can deduct up to 30% of your AGI.

To make sense of this, here are some simple examples.

Example 1: Cash Contributions to a DAF

Let’s say John has an Adjusted Gross Income (AGI) of $100,000 in a given year. He decides to make a cash contribution to a Donor-Advised Fund (DAF) at Givepact.

  • AGI: $100,000
  • Maximum Deduction Limit for Cash Contributions: 60% of AGI
  • Maximum Deductible Amount: $100,000×0.6=$60,000

If John contributes $60,000 in cash to a DAF, he could potentially lower his taxable income to $40,000 for that year, assuming he has no other deductions.

Example 2: Cryptocurrency Contributions to a DAF

Now, let’s say Sarah has an Adjusted Gross Income (AGI) of $100,000 and she decides to contribute cryptocurrency that she has held for more than a year to her DAF at Givepact.

  • AGI: $100,000
  • Maximum Deduction Limit for Cryptocurrency Contributions: 30% of AGI
  • Maximum Deductible Amount: $100,000×0.3=$30,000

If Sarah contributes cryptocurrency worth $30,000 to a DAF, she could potentially lower her taxable income to $70,000 for that year, assuming she has no other deductions.

Making the Most of Your Contributions

At Givepact, we accept cash and cryptocurrency contributions, allowing you to capitalize on the growing value of digital assets in the philanthropic space.

For instance, if you hold cryptocurrencies that have appreciated significantly, you can donate them directly to your Givepact DAF. This approach enables you to bypass the capital gains tax that would be due if you sold the crypto and donated the cash. Plus, you become eligible to claim a tax deduction for the fair market value of the cryptocurrency.

Track Your Contributions Diligently

To fully utilize these tax benefits, maintaining accurate records of your transactions is crucial. You must keep track of contribution specifics, including the date, amount, and type of cash or cryptocurrency donated. We streamline this process by offering all Givepact donors comprehensive tax receipts, simplifying your record-keeping responsibilities and ensuring you're prepared for tax season.

Consult a Professional Advisor

Understanding the tax landscape surrounding DAF contributions can be complex. Therefore, we highly recommend consulting with a financial advisor or tax professional to guide you through these intricacies and provide personalized advice based on your financial circumstances. While we at Givepact are here to facilitate your philanthropic journey, professional advice is essential for precise tax-related queries.

The Givepact Advantage

With a solid understanding of the tax implications and deduction limits, you can make the most of your DAF with Givepact. This knowledge empowers you to achieve your philanthropic goals, enjoy substantial tax advantages, and have confidence that your contributions are making the greatest impact on the causes you deeply care about.

Kickstart your philanthropic journey with Givepact today and unlock the power of strategic giving.

Note: This blog post is intended for informational purposes only and does not constitute legal or financial advice. Always consult with a professional tax advisor or attorney regarding your specific situation.