Can you use a DAF to fund your own 501c3?

[mistymoney]

Can you set up a tiny 501c3 and then use the DAF?

Thinking of doing something for stray cats in retirement - getting them off the street, providing medical care, etc. maybe financing fosters with food, etc.

[blueberrybushes]

What is the point of setting up a non-profit to be funded by another non-profit?

As far as I know, you won't get to deduct both contributions. And, funding the DAF might not be as effective as donating to the 501(c)3.

Don't get it?

[thedigitalone]

What is the point of setting up a non-profit to be funded by another non-profit?

As far as I know, you won't get to deduct both contributions. And, funding the DAF might not be as effective as donating to the 501(c)3.

Don't get it?

You fund the DAF with tax-free dollars by transferring appreciated shares without a tax hit.  Then donate funds from the DAF to the 501c3, which gets them tax free. After that the 5013c pays you as an employee, paying the appropriate payroll taxes, which are way less than the original appreciated taxes, what a great (illegal) tax dodge?

[seattlecyclone]

What is the point of setting up a non-profit to be funded by another non-profit?

As far as I know, you won't get to deduct both contributions. And, funding the DAF might not be as effective as donating to the 501(c)3.

Don't get it?

You fund the DAF with tax-free dollars by transferring appreciated shares without a tax hit.  Then donate funds from the DAF to the 501c3, which gets them tax free. After that the 5013c pays you as an employee, paying the appropriate payroll taxes, which are way less than the original appreciated taxes, what a great (illegal) tax dodge?

You then also have to pay income tax on the entire amount of your wages. Paying capital gains tax on just the gains from the shares sounds cheaper. Maybe this would seem like a good move if you overfunded a DAF and have regrets about it? No idea if it's illegal, definitely seems shady though.

[thedigitalone]

What is the point of setting up a non-profit to be funded by another non-profit?

As far as I know, you won't get to deduct both contributions. And, funding the DAF might not be as effective as donating to the 501(c)3.

Don't get it?

You fund the DAF with tax-free dollars by transferring appreciated shares without a tax hit.  Then donate funds from the DAF to the 501c3, which gets them tax free. After that the 5013c pays you as an employee, paying the appropriate payroll taxes, which are way less than the original appreciated taxes, what a great (illegal) tax dodge?

You then also have to pay income tax on the entire amount of your wages. Paying capital gains tax on just the gains from the shares sounds cheaper. Maybe this would seem like a good move if you overfunded a DAF and have regrets about it? No idea if it's illegal, definitely seems shady though.

Hm, but you also get to write off the charitable contribution for the DAF funding if you are itemizing. So if you donate $100k in appreciated stocks that have a cost basis of $10k you get a $90k deduction as well. No idea what % of that $90k you'd see, but it would help offset some of the payroll taxes. Maybe have the 501c3 pay it out as a 1099 so there would be more left to spend on 'payroll'?  Why do I feel like a politician thinking like this?

[EvenSteven]

What is the point of setting up a non-profit to be funded by another non-profit?

As far as I know, you won't get to deduct both contributions. And, funding the DAF might not be as effective as donating to the 501(c)3.

Don't get it?

You fund the DAF with tax-free dollars by transferring appreciated shares without a tax hit.  Then donate funds from the DAF to the 501c3, which gets them tax free. After that the 5013c pays you as an employee, paying the appropriate payroll taxes, which are way less than the original appreciated taxes, what a great (illegal) tax dodge?

I don't see what the DAF is adding to this equation. Couldn't you just donate directly to the 501c3 and get the same tax write off?

Edit: I see you addressed this in your next post

[dandarc]

OP - am I correct that you're talking about funding the 501c3 with existing DAF money, perhaps over the course of a long time? So the DAF is funded before your retirement, invested there, then this is one possible grant you might be making.

So long as the 501c3 is properly formed (this usually means recruiting a real board of directors that isn't just you and having the correct language in your articles of incorporation and bylaws), I can't see it being an issue - along the lines of sending money from DAF to your church. I'd be wary about receiving a salary, but you didn't say that was your plan, plus anything you did wind up getting from the 501c3 would be taxable income to you.

[mistymoney]

What is the point of setting up a non-profit to be funded by another non-profit?

As far as I know, you won't get to deduct both contributions. And, funding the DAF might not be as effective as donating to the 501(c)3.

Don't get it?

You fund the DAF with tax-free dollars by transferring appreciated shares without a tax hit.  Then donate funds from the DAF to the 501c3, which gets them tax free. After that the 5013c pays you as an employee, paying the appropriate payroll taxes, which are way less than the original appreciated taxes, what a great (illegal) tax dodge?

who said anything about a salary? this would be to pay for vet care and food for strays and find them homes.

[mistymoney]

OP - am I correct that you're talking about funding the 501c3 with existing DAF money, perhaps over the course of a long time? So the DAF is funded before your retirement, invested there, then this is one possible grant you might be making.

So long as the 501c3 is properly formed (this usually means recruiting a real board of directors that isn't just you and having the correct language in your articles of incorporation and bylaws), I can't see it being an issue - along the lines of sending money from DAF to your church. I'd be wary about receiving a salary, but you didn't say that was your plan, plus anything you did wind up getting from the 501c3 would be taxable income to you.

hmm, that does sound a little more complicated than I was envisioning. My thought was to direct maybe 250k to a DAF and then use about 10k a year for my own charitable work that would place local strays into fosters or permanent homes, maybe gifting people with a an initial set up of food, litter and box, treats etc. and to maybe work with other people who take in strays but can't afford the vet bills all the time. So like a local apply for a grant if you find a sick stray that needs vet care, or even just paying the usual vaccines and spay/neuter. Or to provide funds for TNR costs or food to feed feral colonies, etc.

[mistymoney]

What is the point of setting up a non-profit to be funded by another non-profit?

As far as I know, you won't get to deduct both contributions. And, funding the DAF might not be as effective as donating to the 501(c)3.

Don't get it?

this would be to transfer 401k rollover money into a charitable fund without paying income taxes on it. Keep it invested like it has been, and would use ~4% as the budget to spend on vet care and set up. And then when I die I could either pass the torch to someone else, or just lump sum it to another charity.

But I suppose I see the point if I instead just did 10k directly to the 501c3 out of my 401k and then itemized the deduction? I guess I was thinking about making a permanent pot but I guess could work that way too....

Something about the DAF made it seem like a permanent thing, rather than a yearly decision, which I was liking.

[Dicey]

The most cost-effective way to do this is to find someone else who's already doing it and draft in their wake. Volunteer, donate money, get on their board, etc. Your money will go so much farther if you can avoid all the admin costs.

[EvenSteven]

The most cost-effective way to do this is to find someone else who's already doing it and draft in their wake. Volunteer, donate money, get on their board, etc. Your money will go so much farther if you can avoid all the admin costs.

I agree with this. Again I’m not sure what the DAF is adding to the equation. Are you aware of QCDs, or qualified charitable distributions? You can donate straight from your IRA tax free.

[mistymoney]

The most cost-effective way to do this is to find someone else who's already doing it and draft in their wake. Volunteer, donate money, get on their board, etc. Your money will go so much farther if you can avoid all the admin costs.

this is exactly what I do not want to do, although I appreciate that perspective. I agree - giving money is the easy way. And while I admire many dedicated shelters and shelter staff - that is not where I want any strays to end up if I can stop it. It's great if they are adopted in a month or so, but when I hear these stories of animals being in shelters for years - my heart just breaks. I'm not looking to maximize my efforts in any grand scheme - I'm looking for a way to be able to directly help the animals I see out my front door and maybe help just a few others here and there to do the same.

[mistymoney]

The most cost-effective way to do this is to find someone else who's already doing it and draft in their wake. Volunteer, donate money, get on their board, etc. Your money will go so much farther if you can avoid all the admin costs.

I agree with this. Again I’m not sure what the DAF is adding to the equation. Are you aware of QCDs, or qualified charitable distributions? You can donate straight from your IRA tax free.

Thanks - will look into this!

[Dicey]

The most cost-effective way to do this is to find someone else who's already doing it and draft in their wake. Volunteer, donate money, get on their board, etc. Your money will go so much farther if you can avoid all the admin costs.

this is exactly what I do not want to do, although I appreciate that perspective. I agree - giving money is the easy way. And while I admire many dedicated shelters and shelter staff - that is not where I want any strays to end up if I can stop it. It's great if they are adopted in a month or so, but when I hear these stories of animals being in shelters for years - my heart just breaks. I'm not looking to maximize my efforts in any grand scheme - I'm looking for a way to be able to directly help the animals I see out my front door and maybe help just a few others here and there to do the same.

I think you might be underestimating the amount of admin time and expense involved. It doesn't sound like you're interested in all that, nor do you need to be. Here's an example I'm familiar with:

https://arflife.org/

BTW, they only take animals from shelters and they are a no-kill operation. The LaRussa family is no longer involved [dramadramadrama], but the good work continues.

Getting involved with a larger operation means more animals will be helped.

As to those "articles" about animals kept in shelters for years, many of them are just tugging at your heartstrings so you'll open your wallet. Not criticizing you, just suggesting that emotions sell.

Anyway, good luck reaching your goal, whatever form it takes.

[MustacheAndaHalf]

Money sent from your DAF to your charity sounds like asking for trouble.

"Section 4958 of the Internal Revenue Code imposes an excise tax on excess benefit transactions between a disqualified person and an applicable tax-exempt organization."
https://www.irs.gov/charities-non-profits/charitable-organizations/intermediate-sanctions

"A disqualified person is any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization at any time during the lookback period."
https://www.irs.gov/charities-non-profits/charitable-organizations/disqualified-person-intermediate-sanctions