Lisa Greene-Lewis, TurboTax expert and CPA, explains the tax advantages of creating a donor-advised fund for making charitable contributions.
Watch the video above or read the transcript below.
Tracy Byrnes: If you're charitably inclined, there's a lot of things you could do out there. But one of the really cool things that a lot of people miss are 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 sounds like it's something that only the rich people have, but anybody could open one. So tell us, exactly what is a donor-advised fund?
Lisa Greene-Lewis: Yeah, so a donor-advised fund is a fund where you're able to make charitable contributions into a fund, and you can make them to various charities that you love and like. And you're able to take a deduction for those charitable contributions.
Tracy Byrnes: So you create this fund. It's your personal little fund, let's call it, and you put money in. When do you get the deduction, when you put the money in?
Lisa Greene-Lewis: So you're able to get the deduction in the year that you contribute to that fund. So it doesn't even matter if those funds have been distributed to the charities, but it goes by when you put the money into the fund.
Tracy Byrnes: Yeah, so if you had a really good year or something, you came into some money, you open—they call it a DAF, as the inside lingo—and let's say you front-load it with $10,000. You can take that $10,000 the year you front it.
Lisa Greene-Lewis: Right, that's the advantage of it, not having to wait until the funds are distributed or when it's decided that on the charities and when you're going to distribute that money.
Tracy Byrnes: Let's talk about how then the money is distributed. Are there rules? Does it have to be distributed over a certain period of time? Does it matter who it goes to?
Lisa Greene-Lewis: So when you create the fund, you can decide what charities you want it to go to. Now once you put the money into the fund, then the financial institution is the owner. 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 can't see any downsides to it because you're able to contribute to the fund and take the deduction before the money is even distributed. And if you do decide to do this, TurboTax will walk you through reporting your donor-advised fund.
Tracy Byrnes: Yeah, it's a super cool idea, and I think it empowers you a little bit because you can direct where your contributions go plus get a big charitable deduction in the year you fund it. Lisa Greene-Lewis, TurboTax expert, thank you for bringing that to our attention.
Lisa Greene-Lewis: Thank you for having me.
